Investors are worried Bill Ackman’s SPAC is struggling to find an acquisition target

FILE PHOTO: Bill Ackman, chief executive officer and portfolio manager at Pershing Square Capital Management, speaks during the SALT conference in Las Vegas, Nevada, U.S. May 18, 2017.  REUTERS/Richard Brian
Bill Ackman, chief executive officer and portfolio manager at Pershing Square Capital Management, speaks during the SALT conference in Las Vegas

  • Investors are getting anxious about billionaire hedge fund manager Bill Ackman finding a target for his SPAC to take public, Institutional Investor reported.
  • Ackman says a deal has been in the works since November, and that the SPAC team has done its homework.
  • Even so, if he can’t get the transaction done, Ackman said his SPAC will move on to another target.
  • See more stories on Insider’s business page.

Investors are starting to worry Bill Ackman’s blank-check company is struggling to find an acquisition target, Institutional Investor reported this week.

The billionaire hedge fund manager told investors on a Wednesday call that he will make an announcement whether his Pershing Square Tontine Holdings SPAC gets a deal done with the current target or has to move on.

The uncertaintly is making retail investors anxious. The story from Institutional Investor found sentiment was low on a “PTSH support group” page comprised of retail traders. One told the magazine that it “seems like the deal won’t happen” as Ackman keeps mentioning the idea of a backup target.

His SPAC – which launched with the goal of spending $5 billion to take a private business public – started working on a transaction in early November.

“We’ve done our homework, we like the business, we love the management team, and we are working to complete a transaction, as I said within weeks,” he said on the call, according to a transcript from Seeking Alpha.

“If we cannot get this transaction done, we will move on to target number two, and there are other interesting opportunities for us to pursue,” he added.

Following Ackman’s comments, shares of Tontine, which went public in July 2020 under the ticker PTSH, declined, closing out the day 1.2% lower.

According to a Monday filing with the Securities and Exchange commission, Tontine said it’s “currently in negotiations with a specific business target and while substantial progress has been made, significant issues remain to be addressed before a transaction can be announced and consummated, if at all.”

Several institutional investors have sold all or some of their positions in the SPAC, though its early backers are still in place. Hedge Fund Soroban Capital sold its stake of 5 million shares, Taconic Capital sold half of its 1.1 million shares, and the Ontario Teachers Pension Plan sold 4.3 million shares, though that was only part of its investment, Institutional Investor reported.

But early backers Guggenheim Capital and Baupost Group still hold tens of millions of shares in Ackman’s SPAC.

On The Wall Street Journal’s “The Future of Everything Festival,” Ackman said he and his team found an “iconic, phenomenal, great business with a great management team that meets all of our criteria.” But, the nature of the target, the complexity of the deal, and other issues have caused delays, he said, adding that the company is so attractive it will be “worth the energy and the effort.”

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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

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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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Dozens of startups raised hundreds of millions to go public with a SPAC or IPO after taking government loans during the pandemic

SPAC popularity in real esate tech world 4x3
Samantha Lee/Insider

  • About 30 startups took government-backed pandemic loans before raising millions in a SPAC deal.
  • Another 16 startups went public with an IPO in the months after they received the loan.
  • IPOs and SPACs took off amid the pandemic, taking hundreds of companies public.
  • See more stories on Insider’s business page.

Dozens of startups took government-backed loans for small businesses during the pandemic and then went public, new data show.

The data, provided to Insider by PitchBook, showed about 30 startups went public with a special purpose acquisition company, better known as a SPAC, in the months after receiving a Paycheck Protection Program loan, a forgivable loan aimed at helping business owners harmed by the pandemic.

Another 16 companies, ranging in valuation from $187 million to $8.5 billion, joined the public markets with an initial public offering after they received the loan.

The Wall Street Journal, which first reported on the data, said the dichotomy of receiving a government-backed loan followed by raising millions with a SPAC or public offering has sparked debate as to whether the companies should pay back the PPP loans, even if they meet the qualifications for forgiveness.

Read more: A 29-year-old crypto billionaire who’s perfected digital-currency arbitrage shares 2 tips for investors looking to get started in trading – and explains why ether is unlikely to surpass bitcoin

Through interviews with executives and analysis of public documents, the Journal found a third of the 15 highest-valued startups that took a PPP loan ahead of a SPAC deal already repaid the money or have said they’ll do so.

The government doled out 5.2 million PPP loans, totaling $782.2 billion as of May. The businesses who got a loan can receive forgiveness if it was used for qualified expenses, like rent or worker pay.

Some companies were scrutinized for taking a PPP loan meant for small business-owners. Shake Shack, for example, received a $10 million loan and later paid it back after people criticized the company for receiving one as program funds dried up, leaving other businesses without any aid.

One CEO told the Journal the $3 million loan was an “invaluable tool” at the time the pandemic hit, and he was happy to repay it after raising $600 million in a SPAC deal. The executive, Scott Mercer, founded Volta Industries Inc., and merged with Tortoise Acquisition Corp II in a deal that valued the electric-vehicle-charging company at $2 billion, Reuters reported.

SPACs took off in a big way during the pandemic. The blank-check companies merge with private businesses and take them public, without the target having to go through an initial public offering. In 2020 alone, SPACs raised a record $73 billion, which was a 462% jump over the previous year.

So far this year, the number of SPAC deals has already beaten that record. But the SPAC boom may be slowing down, Insider reported previously. Regulators have been monitoring the SPAC craze, and in March, the Securities and Exchange Commission warned investors of the risk in SPACs not living up to the hype.

The IPO market also took off during the pandemic, with 430 new companies listing in 2020, which is the most since 2000, according to Dealogic.

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JPMorgan is calling the top for SPACs – and says declining day-trader interest is to blame

Stock Market Bubble

The SPAC boom that defined market euphoria in 2020 and continued into 2021 has officially peaked, according to a Wednesday note from JPMorgan.

Since February, performance in SPAC stocks has materially underperformed the S&P 500, and new deal activity with SPACs has plummeted in April following a strong start to the year.

The Defiance Next Gen SPAC Derived ETF is down 25% from its February peak, and is down 9% year-to-date.

The decline in SPAC activity has been driven by a decline in retail traders pouring money into the new deals, as well as increased regulatory scrutiny from the SEC, according to JPMorgan.

The bank highlighted that SPAC reverse mergers “come and go in waves” as they tend to exhibit boom and bust cycles.

“The boom [is] typically driven by momentum and imitation by sponsors, investors, and target companies looking to take advantage of strong equity market demand conditions, and the bust [is] typically triggered by the emergence of poor quality players, strong levels of dilution for shareholders, waning hype by retail investors and regulatory concerns,” JPMorgan explained.

So far this year, more than 308 SPAC IPOs have raised $100 billion in proceeds, according to data from SPACInsider. In 2020, 248 SPAC IPOs raised $83 billion in proceeds. More SPAC deals were raised in the first quarter of 2021 than all of 2020.

“The acceleration in SPAC activity in Q1 was so strong that was more reminiscent of a peak especially when combined with the emergence of poor quality players and regulatory scrutiny during the first quarter,” JPMorgan said.

New SPAC offerings in April have been almost non-existent, with last week marking the first week with zero new SPAC debuts for the first time since March 2020.

Read more: SPAC short-sellers have taken home $500 million in 30 days. These are the 10 most profitable blank-check companies to bet against right now.

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A SPAC backed by an LA Dodgers co-owner will take online ticket marketplace Vivid Seats public at a $2 billion valuation

GettyImages 576940202 (1)
LA Dodgers owners of Guggenheim Baseball Management, LLC – (from left) Stan Kasten, Mark Walter, Earvin Magic Johnson, Peter Guber, and Todd Boehly during the press conference to introduce the new owners of the Dodgers at Dodger Stadium in Los Angeles, CA on May 2, 2012.

  • A SPAC backed by LA Dodgers co-owner Todd Boehly is taking online ticket marketplace Vivid Seats public.
  • The deal will put the combined valuation of both companies at $1.95 billion.
  • The SPAC, Horizon Acquisition, will provide around $769 million of gross proceeds to Vivid Seats, including a $225 million PIPE.
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A blank check company backed by Los Angeles Dodgers co-owner Todd Boehly announced Thursday that it is taking online ticket marketplace Vivid Seats public, putting the combined valuation of both companies at $1.95 billion.

Boehly’s Horizon Acquisition SPAC will provide around $769 million of gross proceeds to Vivid Seats, including a $225 million private investment in public equity, or PIPE, at $10 per share from investors including Fidelity Management & Research Company and Eldridge Industries, which Boehly is CEO of.

The new company will be led by Vivid Seats CEO Stan Chia. Boehly, chairman and CEO of the SPAC, will join the Vivid Seats’ board of directors.

“Vivid Seats has built an impressive technology platform, as well as a substantial customer base,” Boehly, who is also the founder of Eldridge Industries, said in a statement. “Vivid Seats is a scaled, growing and highly profitable marketplace that will be well-positioned to drive continual long-term growth.”

Vivid Seats is a live portal that connects fans with ticket sellers across. The Chicago-based company is poised to take advantage of consumers’ pent-up demand – after being locked in their homes due to the pandemic – to attend sports, concert, and theater events as Covid-19 restrictions worldwide ease.

The online ticket marketplace currently supports over 12 million customers and 3,400 sellers across more than 200,000 listed events. Founded in 2001, the company counts ESPN and The Rolling Stones as its partner, among others.

Evercore is acting as financial and capital adviser to Vivid Seats, while Credit Suisse, Deutsche Bank Securities and RBC Capital Markets are advising Horizon on the deal.

SPACs, shell companies seeking to merge with private companies with the intention of taking them public, have boomed.

In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But by April of this year, 308 SPACs have raised $99.7 billion, comprising 65% of all IPOs.

While the boom in SPACs has slowed recently, Goldman Sachs said these could still drive $900 billion of dealmaking over the next two years.

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A SPAC backed by an LA Dodgers co-owner will take online ticket reseller Vivid Seats public at a $2 billion valuation

GettyImages 576940202 (1)
LA Dodgers owners of Guggenheim Baseball Management, LLC – (from left) Stan Kasten, Mark Walter, Earvin Magic Johnson, Peter Guber, and Todd Boehly during the press conference to introduce the new owners of the Dodgers at Dodger Stadium in Los Angeles, CA on May 2, 2012.

  • A SPAC backed by LA Dodgers co-owner Todd Boehly is taking online ticket marketplace Vivid Seats public.
  • The deal will put the combined valuation of both companies at $1.95 billion.
  • The SPAC, Horizon Acquisition, will provide around $769 million of gross proceeds to Vivid Seats, including a $225 million PIPE.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

A blank check company backed by Los Angeles Dodgers co-owner Todd Boehly announced Thursday that it is taking online ticket marketplace Vivid Seats public, putting the combined valuation of both companies at $1.95 billion.

Boehly’s Horizon Acquisition SPAC will provide around $769 million of gross proceeds to Vivid Seats, including a $225 million private investment in public equity, or PIPE, at $10 per share from investors including Fidelity Management & Research Company and Eldridge Industries, which Boehly is CEO of.

The new company will be led by Vivid Seats CEO Stan Chia. Boehly, chairman and CEO of the SPAC, will join the Vivid Seats’ board of directors.

“Vivid Seats has built an impressive technology platform, as well as a substantial customer base,” Boehly, who is also the founder of Eldridge Industries, said in a statement. “Vivid Seats is a scaled, growing and highly profitable marketplace that will be well-positioned to drive continual long-term growth.”

Vivid Seats is a live portal that connects fans with ticket sellers across. The Chicago-based company is poised to take advantage of consumers’ pent-up demand – after being locked in their homes due to the pandemic – to attend sports, concert, and theater events as Covid-19 restrictions worldwide ease.

The online ticket marketplace currently supports over 12 million customers and 3,400 sellers across more than 200,000 listed events. Founded in 2001, the company counts ESPN and The Rolling Stones as its partner, among others.

Evercore is acting as financial and capital adviser to Vivid Seats, while Credit Suisse, Deutsche Bank Securities and RBC Capital Markets are advising Horizon on the deal.

SPACs, shell companies seeking to merge with private companies with the intention of taking them public, have boomed.

In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But by April of this year, 308 SPACs have raised $99.7 billion, comprising 65% of all IPOs.

While the boom in SPACs has slowed recently, Goldman Sachs said these could still drive $900 billion of dealmaking over the next two years.

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SPACs could drive $900 billion of dealmaking over the next 2 years despite the boom slowing, Goldman says

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Southeast Asian ride-hailing app Grab is set to go public in a $40 billion SPAC deal.

The boom in special-purpose acquisition companies, or SPACs, may have slowed of late, but it could still drive $900 billion of dealmaking over the next two years, according to Goldman Sachs.

“We estimate $129 billion of SPAC capital is currently searching for a target,” Goldman analysts, led by David Kostin, said in a note on Wednesday.

“In spite of the issuance slowdown and sell-off, SPACs could drive a total of $900 billion in M&A enterprise value in the coming 24 months.” Enterprise value is the total value of a company, including its market capitalization, cash and debt.

A record 277 blank-check companies issued shares in the first quarter, raising $91 billion from investors. It helped power the strongest first quarter for dealmaking in 40 years, topping even the dotcom bubble of 2000.

A SPAC is an entity that exists solely to list on the stock exchange to raise money, in the hope of finding and merging with a target company to take it public. They can be incredibly lucrative for early supporters, and offer companies a less onerous and costly way of listing on the stock exchange.

On April 13, Asian ride-hailing company Grab agreed to go public through a $40 billion merger with the Altimeter Growth Corp SPAC. Trading platform eToro will also list through a $10 billion SPAC deal.

But the SPAC boom has slowed in recent weeks. Just six new SPACs have come to market so far in the second quarter, Goldman said, compared to 55 at the same point in the first 3 months of the year.

Goldman said signals from US regulators that they are concerned about various aspects of the SPAC frenzy, including the reporting, accounting and governance of SPACs, has been the key factor weighing on the market.

Nonetheless, there were 394 SPACs seeking companies to take public as of Wednesday, with $129 billion of equity capital, Goldman said.

The bank’s estimate that blank-check companies could drive $900 billion in dealmaking over the coming years assumed active SPACs find targets and close deals, and that future acquisitions are structurally similar to transactions announced so far in 2021.

Goldman Sachs itself has been a key driver of the SPAC boom. The blank-check phenomenon helped power record investment banking revenues in the first quarter.

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Legendary investor Bill Miller says the window is closing on the SPAC market, but singles out 2 names that remain attractive

Bill Miller

Legendary investor Bill Miller thinks the SPAC craze may be nearing the end.

Pushed by a frenzy of excitement from retail investors and a desire from many pre-revenue companies to take an easier path to public markets, SPACs have boomed in 2020 and 2021.

“I think that game is largely winding down now,” Miller told CNBC on Tuesday. “Many of the SPACs that came public came at extraordinarily expensive valuations. But now some of them have corrected.”

The billionaire pointed to some SPACs that now have more reasonable valuations, such as Desktop Metal, a 3D metal printing technology provider that famed investor Chamath Palihapitiya also backed. The company went public in a merger with blank check company Trine Acquisition. The stock peaked at $31.25 on February 1 before tumbling to $12.70 as of April 20.

Miller also said he likes Metromile, a US-based pay-per-mile insurance technology that merged with SPAC Insu Acquisition in February. The billionaire called it the “next wave of insurance company.” Metromile shares have tumbled 50% since their public debut.

Miller also named specific stocks including Amazon, Alphabet, Facebook, and Apple, which he said his fund no longer owns.

He also singled out online car dealer Vroom.

“That’s the name we think you could make multiple times your money in the next three or four years,” he told CNBC.

SPACs, shell companies seeking to merge with private companies with the intention of taking them public, have boomed. In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But by the fourth month of 2021 alone, 308 SPACs have raised $99.7 billion, comprising 65% of all IPOs.

Recently however, US regulators have said they will take a closer look at SPACs following the blistering pace of growth over the last year.

Paul Munter, the acting chief accountant at the Securities and Exchange Commission, in April cautioned SPAC investors about the risks and governance issues that come with raising capital through blank check companies.

In March, the SEC has begun an inquiry into the SPAC craze, seeking voluntary information from market participants.

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The SEC says it’s looking closely at the wild earnings projections attached to many SPAC offerings

FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst
FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door

The US Securities and Exchange Commission issued a warning to blank-check companies presenting projections that only give an optimistic outlook of future growth. The agency added that it will “look carefully” at SPAC filings and disclosures as well as those of their private targets.

John Coates, the agency’s acting director for the corporation finance division, said on Thursday that a company would be on “shaky ground” if it only disclosed favorable projections and omitted “equally reliable but unfavorable projections.”

Special purpose acquisition companies or SPACs have been booming, enabling many pre-revenue startups to go public. SPACs are essentially shell companies seeking to merge with private companies with the intention of taking them public. SPACs are often considered a cheaper, faster alternative to a traditional IPO.

SPAC sponsors have also generally been allowed to more freely give projections of future growth than is allowed for companies going public via traditional IPO, which are not allowed to broadcast future sales or earnings.

Coates pointed to the Private Securities Litigation Reform Act safe harbor, a legal liability SPACs often refer to when making optimistic forward-looking statements.

“This…is the reason that sponsors, targets, and others involved in a de-SPAC feel comfortable presenting projections and other valuation material of a kind that is not commonly found in conventional IPO prospectuses,” he said, referring to the safe harbor.

This, he said, raises significant investor protection questions, and is why he is calling on the agency to treat SPAC deals with the same level of scrutiny as IPOs.

“Any simple claim about reduced liability exposure for SPAC participants is overstated at best, and potentially seriously misleading at worst,” Coates said. “Indeed, in some ways, liability risks for those involved are higher, not lower, than in conventional IPOs, due in particular to the potential conflicts of interest in the SPAC structure.”

Coates added that while projections are woven into the fabric of business combinations, they have to be fair. Forward-looking information, he said, can be “untested, speculative, misleading or even fraudulent, as reflected in the limitations on the PSLRA’s liability protections.” He floated the possibility of having guidance about how projections and related valuations should be presented.

SPACs have attracted a number of high-profile investors including famed fund manager Bill Ackman and billionaire Chamath Palihapitiya. Celebrities have also joined the bandwagon, with icons such as baseball star Alex Rodriguez and tennis legend Serena Williams backing recent SPAC offerings.

Regulators have recently turned their eye to the soaring market. On March 11, acting SEC Chair Allison Herren Lee said that SPAC returns don’t warrant the “hype” they’re getting.

Last year, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But by the fourth month of 2021 alone, data already show 306 SPACs that raised $98.3 billion, comprising 79% of all public offerings.

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Bill Gates says companies have gone from staying private too long to going public too soon and that he’s avoiding ‘low quality’ SPACs

Bill Gates
  • Bill Gates believes some companies may be going public too soon amid a SPAC boom.
  • The billionaire said he will be sticking to “higher quality” SPACs in this environment.
  • Gates emphasized the need for “extreme” disclosures to protect investors from early-stage investing risks.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Bill Gates said he believes companies have “flipped” from staying private too long to going public too soon, in an interview with CNBC on Friday.

The billionaire Microsoft co-founder added that he will be avoiding “low quality” special purpose acquisition companies (SPACs) that have flooded the market and sticking with “higher quality” options.

Gates sat down with CNBC’s Becky Quick and former US Treasury Secretary Hank Paulson to discuss his climate-related work for the economic club of New York on Friday. In the interview, the billionaire philanthropist was asked about the rise of SPACs and whether or not they would be a benefit to “green” startups.

SPACs have raised more money in the first quarter of 2021 than they did in all of 2020, raking in more than $97 billion in just three months, according to data from SPAC Research.

Gates emphasized the capital intensive nature of climate change solutions and green companies and said that if investors are willing to take the risk, cash from capital markets would allow “green product companies” to “improve their balance sheet and get capital for projects because the markets are saying this is important.”

On the other hand, Gates warned about the risks in early-stage investments, saying, “you’ve got to make sure your disclosure about the risks is really extreme.”

He also noted that “we’ve kind of flipped from a world where companies would probably stay private too long, to now where, unless you’re tasteful, some of these companies may be going public too soon.”

Gates added that “there will be quality companies that SPAC,” but emphasized there will also be “low-quality companies” that choose to take advantage of the SPAC boom. Gates said he will be looking to stay involved in the only higher-quality offerings.

After a meteoric rise in SPACs over the past two years, there’s been some evidence that the SPAC market is beginning to cool.

Specifically, SPAC IPO prices have begun to fall. In fact, some 93% of SPACs that went public in the last week of March traded below their $10 initial offering price, per Reuters.

SPAC ETFs are also taking a hit, the Defiance Next Gen SPAC Derived ETF (SPAK) has fallen 23% from February 17 record highs.

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