Lloyd Blankfein on how the SPAC panic could go wrong with investors

Former Goldman Sachs CEO Lloyd Blankpain sees problems ahead for SPACs, special purpose acquisition companies are used to make companies public.

Although the SPAC trend shows no sign of cooling against the backdrop of high demand for shares of new companies, investors should be careful, Blankfein said Monday in Squawk Box. This is because the SPAC process bypasses the rigorous due diligence of the normal issuance process, according to Blankfein.

“You make companies public, but you make them public in a two-step process where one of the components of an IPO is dropped,” Blankfein said.

“When the initial SPAC is published, you are examining a shell company, perhaps the reputation of the sponsor,” he continued. “When the same company then cancels the mergers and acquisitions, it’s a merger, it’s not an offering that carries with it a lot of diligence obligations.”

SPACs have been around for years, but they exploded in popularity last year. SPACs raised $ 64 billion in 2020, almost like traditional IPOs, according to Renaissance Capital.

Blankpain, who served as former Goldman CEO led by one of Wall Street’s most prominent IPO advisers for more than a decade, suggested that SPAC participants should not be reluctant to avoid overpaying for their target businesses. This could lead to situations where “some people make a lot of money and lose money. , said.

“In the absence of diligence this will be what will happen,” Blankfein said. “There will be things going wrong.”

The larger background is that behavior seen in SPAC and other areas like Bitcoin is a sign of “elements of bubbles” because of the central banks’ response to the coronary virus epidemic, a point that Blankpain has raised in the past.