Serial SPAC Sponsors Hunt Bigger Game, Draw Greater Confidence
Serial SPAC Sponsors Hunt Bigger Game, Draw Greater Confidence
(Bloomberg) -- Seasoned dealmakers appear to be on the hunt for bigger game.
Chamath Palihapitiya, the venture capitalist behind Virgin Galactic’s public debut, has launched three new special purpose acquisition companies seeking more than $2 billion in total. A filing after the market closed Friday suggests one of the three may even be aimed at a larger target than the luxury spaceflight company founded by Richard Branson.
Palihapitiya’s series, Social Capital Hedosophia Holdings Corp., isn’t alone in upping the ante either.
Of the more than 100 SPACs to debut on U.S. exchanges this year, five of the largest 10 have been part of a growing series. Acting as a shell company, their express purpose is to buy another company looking to go public.
Churchill Capital Corp., Foley Trasimene Acquisition Corp., Gores Holdings Inc. and Forum Merger Corp. have all debuted larger SPACs in the past few months as well. To be sure, each generation of SPAC isn’t always bigger than the last, but the relative bigness of recent blank checks point to investor confidence in serial sponsors such as Palihapitiya, Michael Klein and Bill Foley.
“The multi-generation SPACs are the most sought after among investors because they are proven commodities. That demand allows them to have the tightest pricing,” said Niron Stabinsky, Credit Suisse Group AG’s head of SPACs. And for blank check companies, which almost always price at $10, the pricing is in the size of the offering, and the warrants embedded in the equity units.
Series for Closers
If coffee is for closers, serial SPAC sponsors’ cups runneth over. That’s apparent in the warrants embedded in the equity units investors receive in exchange for their cash. The role of a warrant in a SPAC equity unit is to compensate the investor while a sponsor identifies a target company, does due diligence, and gets a deal inked in the time promised.
“Because a serial SPAC sponsor has already closed a deal, the amount for which an investor has to be compensated can be less,” said John Chirico, who heads up Citigroup Inc.’s banking, capital markets and advisory business for the Americas.
That means Churchill Capital Corp. IV’s equity unit offers a fifth of a warrant, whereas the first came with a half warrant. Gores Holdings Inc. V’s equity unit features a fifth of a warrant compared with the first generation’s full warrant. And the three latest Social Capital Hedosophia SPACs sport quarter warrants, smaller than the third of a warrant of the preceding three.
SPAC sponsors, even the serial ones, are prohibited from having an intended target for a SPAC ahead of its launch, but their previous experiences inform the next, Chirico said. In the middle of ironing out details for one SPAC, they may find another company poised for a debut in a new SPAC down the line, for instance. Presumably, Palihapitiya, now with four SPACs of different sizes on the market, will be able to have conversations with small-, medium- and large-sized businesses.
“Serial sponsors have a continuous evaluation process, so they have a sense of where they are going, the timing and launch a SPAC accordingly,” Chirico said, adding that they right-size SPACs for the target set they see, which may or may not be bigger than the last. “If we’re in a market with deals like this -- all else equal -- then the serial sponsor should also have the advantage because they’re not doing everything for the first time.”
Some serial sponsors’ SPACs are overweighted in the IPOX SPAC Index, not by rule, but as a result of their size and liquidity. The string of deals “may feed into better deals” and better performance, says Josef Schuster, founder of the index.
“When deals are announced, the pop into the consummation may be larger than otherwise,” he said. When one spikes, the sibling SPACs tend to rise too.
©2020 Bloomberg L.P.