Lucky-dip deals are back in a big way on Wall Street. Shell companies that go public to make acquisitions have amassed $600m over the past couple of weeks, continuing a scorching pace that saw a record sum raised last year.
So-called special purpose acquisition vehicles, or Spacs, raise cash from investors on the basis that managers will then go out and try to find a company to buy, or return the money after a certain date if they are unable to do so. Last year Spacs raised a record $13.4bn in the US, according to Dealogic data, a quarter more than the prior year and a level that eclipses the former high-water mark set in 2007, just ahead of the global financial meltdown.
Proceeds raised this year are spread across two deals. The Gores Group, a private equity firm, raised $400m in the company’s fourth Spac. The second, called SCVX, has the support of Hudson Bay Capital Management, the New York hedge fund, and will pursue deals in the cyber security sector.
The amounts raised have increased the pot of cash looking for acquisitions. Spacs currently have $16.6bn on their books that has not yet been deployed. This adds to the $1.45tn in “dry powder” — committed capital that has not yet been invested — within private equity funds, according to Preqin data.
“The number of outstanding Spacs and proceeds right now is quite significant,” said Jim Cooney, head of equity capital markets for the Americas at Bank of America. “The Spacs are under . . . pressure to invest those proceeds in a timely but responsible fashion.”
Being bought by a Spac can be attractive to some companies, which may want to go public but do not relish doing an initial public offering on their own.
Two weeks ago Far Point, the first Spac offering by Dan Loeb, the hedge fund investor, and Thomas Farley, the former New York Stock Exchange president, agreed to merge with Global Blue, a Swiss payments provider. The company had previously been owned by Silver Lake and Partners Group, two private equity firms. The Far Point deal values the combined group at $2.6bn.
In September, Vivint Smart Home, a company backed by Blackstone, the private equity firm, agreed to merge with Mosaic Acquisition Corp, a Spac from Fortress Investment Group, an arm of SoftBank. The deal valued the combined group at $5.6bn.
In another noteworthy deal last year, a Spac launched by Chamath Palihapitiya, a former Facebook executive, merged with Virgin Galactic. The Spac had raised $1.5bn in 2017 but sat idle for two years before combining with Richard Branson’s space-flight group.
Although the amount of capital raised in Spacs set a new record last year, according to Dealogic, the 59 deals in 2019 is still short of the 66 notched in 2007.
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