Zoom may invest in a $5 billion SPAC deal to take event-manager Cvent public, report says

Zoom founder Eric Yuan speaks with a treader after the Nasdaq opening bell ceremony on April 18, 2019 in New York City.

Zoom is in discussions to invest in a $5 billion blank-check deal that would take event-management software company Cvent public, Bloomberg reported on Wednesday.

The popular video-conferencing app is a potential investor in Dragoneer Growth Opportunities Corp. II, which is merging with Cvent in a transaction that values the cloud-based company at more than $5 billion including debt.

Zoom is trying to secure 10% of the equity being raised to support the deal, Bloomberg said, citing sources. The investment could complement Zoom’s burgeoning live-events strategy.

The company has been expanding its business through a series of recent product launches. On Wednesday, it announced the launch of a platform for hosting interactive and immersive virtual events – Zoom Events. Other new products include Zoom Phone, Zoom Room, and Zoom for Home.

Its software can also be used to administer chats, talks, and meet-ups on Cvent’s managing platform.

Zoom didn’t immediately respond to Insider’s request for comment on its potential investment.

During 2020, the app became so popular that it was used for everything from graduation ceremonies to reunions, happy hours, and engagement parties. It recently went a step further to diversify beyond video chat by making its biggest acquisition yet, the near-$15 billion purchase of cloud contact center software-maker Five9.

Analysts say it could be looking at 11 other companies including Calendly, Twilio, and 8×8 to move beyond video calls.

Zoom’s stock price has surged more than 35% in the past 12 months, and is up 4% so far this year.

Read More: The head economist at a blockchain fintech firm names 2 of the most promising crypto SPAC deals on his radar – and explains why blank-check companies can be better alternatives to buying cryptocurrencies

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Nearly 600 IPOs rolled out globally in the second quarter, dominated by traditional listings while SPAC activity cooled, says EY

Didi Chuxing's D1 at the launch event in Beijing on November 16, 2020
Didi Global shares went public in the US in June.

  • 597 IPOs came online in the second quarter of 2021, the busiest quarter for that market in 20 years, said EY.
  • There were 59 SPAC IPOs during the period, a slowdown from 299 during the first quarter.
  • But SPAC activity is poised to pick up again in the second half of 2021.
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The second quarter of 2021 marked the most active for companies entering the public markets worldwide in more than two decades, with traditional IPOs leading the way while the market for SPACs slowed in the US, according to figures from consulting firm EY.

Didi Global as the biggest IPO by proceeds between April and June as the China-based ride-hailing service pulled in $4.4 billion as it launched on Nasdaq. Didi was one of the 597 IPOs that went live last quarter, and among the companies that went through a traditional IPO process. Such firms had the most IPOs, outstripping SPACs, or special purpose acquisition companies, the market for which boomed earlier this year and in 2020.

SPACs are so-called “blank check” firms that go public with only cash on their balance sheet. Their aim is to merge with or acquire a private company, allowing that business to skip the traditional IPO process to debut.

EY said there were 59 SPAC IPOs in the US that raised $12 billion in proceeds in the second quarter, a cooldown from the first quarter when there were 299 SPAC IPOs that raised $96.9 billion.

SPAC formation slowed in the second quarter in part on accounting guidance from the US Securities and Exchange Commission for SPAC-related companies, said EY.

“The guidance indicated that in some cases, SPACs should account for the warrants as liabilities rather than as equity. As a result, many SPACs had to restate their financial statements, a process that should have been completed by June,” the consultancy said in its report.

But activity in the SPAC IPO space should pick up in the third quarter, with nearly 300 SPACs on file that haven’t yet priced, indicating there are SPACs rushing to find suitable targets, said EY. “High-quality target companies could have stronger bargaining power that will enable them to secure more favorable terms,” it said.

Overall, the IPO market has been buoyed by ‘ample” liquidity in the financial systems stemming partly from ongoing government stimulus programs, as well as by a surge in equity markets and speculative and opportunistic transactions, EY said.

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The SEC is reportedly looking into conflicts of interest among major banks in the SPAC deal-making process

The headquarters of the U.S. Securities and Exchange Commission (SEC) are seen in Washington, July 6, 2009. REUTERS/Jim Bourg
The headquarters of the U.S. Securities and Exchange Commission are seen in Washington

  • The SEC is investigating banks over conflicts of interest in the SPAC deal-making process, Reuters first reported.
  • In particular, the regulator is looking into instances of banks acting as underwriter and adviser on the same deal.
  • The SEC has requested information from top SPAC underwriters including Morgan Stanley and Goldman Sachs.
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The US Securities and Exchange Commission is investigating major banks over conflicts of interest in the SPAC deal-making process that exploded in the past year, Reuters first reported.

In particular, the regulator is looking into instances wherein the banks acted both as the underwriters and the advisers on the same SPAC deal and whether certain fee structures may have incentivized underwriters to secure unsuitable mergers, sources told Reuters.

“The big issue for the SEC is to understand if the advisers are conflicted,” one of the sources told Reuters.

The SEC, according to sources, has requested information from top SPAC underwriters including Citigroup, Credit Suisse, Morgan Stanley, and Goldman Sachs. Requests do not imply malpractice.

SPACs are shell companies that list with the aim of merging with private companies and taking them public.

This method is typically done in lieu of an IPO or a direct listing and has garnered support from Wall Street heavyweights as well as pop icons and professional athletes.

Management teams of SPACs, also known as sponsors, generally pay banks a 5.5% fee for underwriting the process. Banks, however, can earn more if they also represent the merger target.

Such conflict of interest could harm investors, sources told Reuters.

Under the current law, banks are not required to disclose their fees in regulatory filings while law and accounting firms are.

SPACs have exploded in popularity in the last year. In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But over halfway through 2021 alone, data already show 368 SPACs that have raised $190 billion, comprising 59% of initial public offerings.

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SPACs have raised a record $100 billion in 2021, but activity levels have plummeted by more than 80% in recent months

DannyMeyer 02 GettyImages 624401698
Danny Meyer, founder of Shake Shack, is the chairman of a new SPAC.

  • Data from Refinitiv shows that global SPAC IPOs have raised a record $100 billion in 2021 so far.
  • Despite the record amount of proceeds, the volume of SPAC listings has plummeted.
  • The Refinitiv data is another sign the blank-check frenzy driven by the Fed’s easy-money policies is drying up.
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The amount of money raised by SPACs around the world has reached a record high, but the blank-check frenzy is showing signs of slowing.

As of May 19, global IPO SPAC proceeds have reached a record high of $100 billion, 23% more than the level recorded throughout all of 2020, new data from Refinitiv shows.

But despite reaching this milestone, the number of special purpose acquisition companies going public has plummeted in recent months. In March, a total of 116 special purpose acquisition companies listed. In April, the number of listings dropped to just 18.

SPAC activity ballooned in 2020 and the beginning of 2021 as the Federal Reserve’s easy-money policies pumped liquidity into the market. Investors were hungry to deploy their cash, and SPACs were just one of their targets.

Now, concerns of overheating inflation out of the pandemic has investors worried the Fed may taper its asset purchases sooner than expected and dry up the market. Minutes from the Fed’s April meeting published Wednesday showed that some officials signaled they would be open “at some point” to begin discussing a plan for adjusting the pace of asset purchases.

Another key driver in the SPAC slowdown is heightened regulatory scrutiny, according to Goldman Sach’s David Kostin. In an April note the chief US equity strategist highlighted that the SEC has recently released two statements expressing concerns over the reporting, accounting, and governance of special-purpose-acquisition companies.

And although proceeds have reached a record high, the performance of blank-check companies and companies that have recently gone public via them is declining.

The Defiance Next Gen SPAC Derived ETF (SPAK), which consists of more than 200 US-listed SPACs and de-SPACs, has underperformed the S&P 500 year-to-date. The SPAC ETF is down 16.33% in 2021, while the benchmark index has gained 9.8%.

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