Blank-Check Company Craze Prompts BMO to Bulk Up SPACs Banking

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Bank of Montreal’s investment bank is building up its capabilities to help clients establish blank-check companies as the Canadian firm seeks to play a bigger role in the fast-growing trend.

BMO Capital Markets is building a “fairly big business” around special purpose acquisition companies, entities that raise money to buy businesses, according to the division’s top executive, Dan Barclay. SPACs have gathered momentum in recent years because public markets have been offering comparable valuations and cost of capital as in the private market, he said.

“They’re going to be around for a while,” Barclay said in an interview. “They won’t be as frothy as they currently are. There’s going to be a little more discipline.”

The surge in SPACs, which have raised more than $145 billion on U.S. exchanges in the past 12 months, has set off a global search for suitable targets -- usually startups with little revenue or mature companies sitting in private equity portfolios, though some are now looking at divisions of public companies.

Despite soaring U.S. activity, Canadian investors have formed fewer blank-check companies in the past two years. BMO Capital Markets has advised on five SPACs in the past year that raised a combined $1.2 billion, according to data compiled by Bloomberg. All were based in the U.S.

SPACs will likely play a role in helping take small mining companies public, said Barclay, whose firm is hosting its annual mining conference this week -- albeit virtually due to the pandemic.

Few blank-check companies have targeted the mining industry. Billionaire mining investor Robert Friedland’s Ivanhoe Capital Acquisition Corp. raised $240 million in January to invest in industries key to the global energy transition. African Gold Acquisition Corp., which is targeting gold assets in Africa, raised $360 million last week.

“If you start to see a bunch of junior financing, you start to see those opportunities come around,” Barclay said. “Then you’ll see SPACs participate.”

Smaller mining firms are already showing interest in such blank-check entities, according to Ilan Bahar, co-head of BMO’s global metals and mining business.

“Two years ago we would have had no conversations with mining entrepreneurs about SPACs,” Bahar said in an interview. “Now we’re having one every couple of weeks.”

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