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Wednesday, March 3, 2021
Goldman Sachs puts the SPAC boom in context.
Since last year we wrote about David Kostin’s equity strategy team at Goldman Sachs explains 2020 the year of SPAC.
In the few months since this report, the trend has only accelerated.
Kostin’s team on Monday published their latest update on the space and the awful pace at which these vehicles enter the market.
And dry time can be an understatement.
As of February 26, about 175 SPAC sponsors have debuted in the public market and raised $ 56 billion. Throughout 2020 – a record year for SPAC IPOs – approximately 223 SPAC sponsors came on the market.
Data from SPAC Insider shows that by Tuesday, about 204 SPAC IPOs had entered the market; no less than 12 SPACs were announced on Tuesday alone, according to data from Street Insider. At this rate, 2020’s record year for SPAC units may darken at the end of the week. SPAC Insider data show that there were 226 total SPAC IPOs from 2009-2019.
As a quick reminder, SPAC is an acronym that stands for Special Purpose Acquisition Company, often referred to as a “blank check company”. These are listed entities with shares that do not represent receivables from an underlying company’s operations, but instead reflect an ownership interest in a capital base that will later be used to acquire an existing business.
Back in January we watched SPAC like another microbubble, which has similarly increased in markets several times in recent years. However, Goldman’s data show that the capital behind these vehicles represents a much more potent market dynamic than speculative flows to crypto projects or pot stocks from the 2017 era.
“SPAC could generate more than $ 700 billion in acquisition activity over the next two years,” Goldman writes. “We estimate $ 103 billion in SPAC capital actively seeking an acquisition target. The total ratio between the target company’s value at merger announcement and associated SPAC capital has been 7 times this year, a jump from 6 times in 2020 and only 3 times in the 2010s. If the YTD ratio were to hold, SPAC would acquire companies worth more than $ 700 billion [enterprise value]. “
Given the interest from customers and the wider markets, we expect Kostin and the team to continue to stick to this theme. And the chart below gives us the easiest way to think about what an implicit value of the SPAC universe might be – just take the total amount of SPAC capital seeking an acquisition and multiply it by 7.
And while multiples of SPAC offers go up, Goldman also finds that the value of companies taken out through this channel increases, as does the rate at which sponsors use their capital.
So far this year, the average value of a company to be disclosed via SPAC is $ 2.9 billion, up from $ 1.7 billion last year and ~ $ 800 million last decade, according to Goldman. Sponsors also find targets 175 days after their IPO, less than half of the time sponsors spent applying in 2020 and down from an average of 487 days in the 2010s.
What to know today
7:00 AM ET: MBA Mortgage Applications, the week ended February 26 (-11.4% in the previous week)
8:15 AM ET: ADP Employment change, February (200,000 expected, 174,000 in January)
9:45 AM ET: Markit US Composite PMI, Final in February (58.8 in previous print)
9:45 AM ET: Markit US Services PMI, Final in February (58.9 expected, 58.9 in previous print)
10:00 AM ET: ISM Services Index, February (58.7 expected, 58.7 in January)
14:00 ET: Federal Reserve releases Beige Book
16:00 ET: Splunk (SPLK) is expected to report an adjusted earnings of 3 cents per share on revenue of $ 677.81 million
16:00 ET: Octa (OCT) is expected to report an adjusted loss of 1 cent per share on revenue of $ 222.05 million
16:00 ET: Snowflake (SNOW) is expected to report an adjusted loss of 17 cents per share on revenue of $ 178.55 million
16:05 ET: Vroom Inc (VRM) is expected to report an adjusted loss of 37 cents per share on revenue of $ 401.85 million
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