SPACs are now a $ 700 billion market: Morning Brief


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Wednesday, March 3, 2021

Goldman Sachs puts the SPAC boom in context.

Late last year, we wrote about David Kostin’s equity strategy team at Goldman Sachs declaring 2020 the year of the SPAC.

In the few months since this report, the trend has only accelerated.

Kostin’s team released its latest update on Monday on the space and the torrid pace with which these vehicles are hitting the market.

And steamy could fall short.

As of February 26, some 175 SPAC backers made their debut in the public market raising a total of $ 56 billion. In all of 2020, a record year for SPAC IPOs, some 223 SPAC sponsors hit the market.

SPAC Insider data shows that as of Tuesday, some 204 SPAC IPOs had gone on the market; on Tuesday alone, no less than 12 SPACs were announced, according to Street Insider data. At this rate, the record year of 2020 for SPACs could be eclipsed by the end of the week. SPAC Insider data shows that between 2009 and 2019, there were 226 SPAC IPOs in total.

As a quick reminder, SPAC is an acronym for Special Purpose Acquisition Company, often referred to as a “blank check” company. These are publicly traded entities with shares that do not represent rights to the business of an underlying company, but rather reflect an ownership interest in a pool of equity that will then be deployed to acquire an existing business.

In January, we saw SPACs as another microbubble, like the ones that have rekindled in the markets several times over the past few years. However, the Goldman data shows that the capital behind these vehicles represents much more powerful market dynamics than speculative flows into 2017-era crypto projects or marijuana stocks.

“SPACs could generate more than $ 700 billion in acquisition activities in the next two years,” Goldman writes. We estimate that $ 103 billion in SPAC capital is actively pursuing an acquisition target. The aggregate ratio between the target business value in the announcement of the merger and the associated SPAC capital has been 7 times higher this year, a jump of 6 times in 2020 and only 3 times during the 2010s. If the YTD ratio were to hold , SPACs would acquire companies worth more than $ 700 billion [enterprise value]. “

Given the interest of customers and the markets in general, we would expect Kostin and his team to stick with this. And the chart below gives us the simplest way to think about what an implied value of the SPAC universe might be: just take the total amount of SPAC capital an acquisition is looking for and multiply it by 7.

There is currently more than $ 100 billion of capital from SPAC seeking an acquisition, and at current deal multiples, this implies that these deals could unlock around $ 700 billion of potential value.  (Source: Goldman Sachs)

There is currently more than $ 100 billion of capital from SPAC seeking an acquisition, and at current deal multiples, this implies that these deals could unlock around $ 700 billion of potential value. (Source: Goldman Sachs)

And as multiples of SPAC deals increase, Goldman also finds that the value of companies going public through this channel is increasing as is the speed with which sponsors are deploying their capital.

So far this year, the average value of a company to go public through SPAC is $ 2.9 billion, up from $ 1.7 billion last year and ~ $ 800 million the last decade, according to data from Goldman. Sponsors are also finding targets 175 days after their initial public offering, less than half the time sponsors spent searching in 2020 and less than an average of 487 days in the 2010s.

For Myles Udland, reporter and presenter of Yahoo Finance Live. Follow him on @MylesUdland

What to know today

Economy

  • 7:00 am ET: MBA mortgage applications, week ended February 26 (-11.4% during the previous week)

  • 8:15 am ET: ADP job change, February (200,000 expected, 174,000 in January)

  • 9:45 am ET: Markit US Composite PMI, End of February (58.8 in previous print)

  • 9:45 am ET: Markit US Services PMI, End of February (58.9 expected, 58.9 in previous printing)

  • 10:00 am ET: ISM service index, February (58.7 expected, 58.7 in January)

  • 2:00 pm ET: The Federal Reserve launches Beige Book

Profits

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Post-market

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  • 4:00 pm ET: SnowflakeSNOW) It is expected to report an adjusted loss of 17 cents a share on revenue of $ 178.55 million.

  • 4:05 pm ET: Vroom Inc (VRM) expected to report an adjusted loss of 37 cents per share on revenue of $ 401.85 million

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