In all of 2014, special-purpose acquisition companies raised a grand total of $1.8 billion in US IPOs, according to the site SPAC Research. This week, Chamath Palihapitiya surpassed that sum in 24 hours: Three different SPACs backed by the Social Capital tycoon priced IPOs on Thursday, combining to raise $2.1 billion.
The listings came just two days after another Social Capital-backed SPAC agreed to merge with insurance startup Clover Health in a $3.7 billion deal. They also came the same week as two other $1 billion-plus SPAC mergers. The same week that two more electric vehicle tech companies eyed SPAC deals. The same week as multiple high-profile SPAC listings from private equity firms. The same week that saw the launch of a new $250 million SPAC that unites the illogical trio of Shaquille O’Neal, former TikTok CEO Kevin Mayer and Martin Luther King III.
The SPAC spree that began this summer isn’t fading away. If anything, it’s accelerating. And that’s one of nine things you need to know from the past week:
1. Super-popular acquisition companies
Let’s start with a rundown of the week’s SPAC news. Like I said, there is a lot of it.
The three new blank-check vehicles from Social Capital Hedosophia raised $400 million, $700 million and $1 billion, respectively. Bloomberg reported that the SPACs drew $7 billion in investor demand, a sign of just how eager investors are to get aboard the SPAC train.
The deal with Clover Health will be Social Capital Hedosophia’s third reverse merger, following a combination last year with space tourism company Virgin Galactic and a pending $4.8 billion deal with Opendoor. A different space transportation company, called Momentus, agreed this week to go public in a SPAC merger worth $1.2 billion.
Even more so than space, the electric vehicle industry has emerged as a hotbed of SPAC activity (SPAC-tivity?). Romeo Power, which makes batteries for EVs, inked a $1.3 billion SPAC merger this week, while Faraday Future, which makes its own vehicles, indicated it was also on the brink of a SPAC deal. Nikola, Fisker, Canoo, Lordstown Motors, XL Fleet and ChargePoint are all other companies in the space that have either agreed to or completed SPAC mergers this year.
In the world of private equity, two SPACs sponsored by TPG Capital combined to raise $800 million. The Gores Group registered its latest SPAC for an IPO, just weeks after a prior Gores-backed SPAC agreed to merge with United Wholesale Mortgage for $16.1 billion. Late Friday, The Wall Street Journal reported that a SPAC backed by RedBird Capital Partners and famed baseball executive Billy Beane is in talks to merge with the parent company of the Boston Red Sox and Liverpool Football Club in an $8 billion deal.
Former dealmakers at KKR and The Carlyle Group are both sponsoring new SPACs. Vehicles backed by Bain Capital, Apollo Global Management and Cerberus Capital Management have all either filed for or completed public debuts since the start of October.
There have been SPAC novelties. A blank-check company backed by FirstMark Capital raised $360 million for a SPAC that may aim to buy one of the venture firm’s portfolio companies, what Dan Primack of Axios described as a “full-stack SPAC.” A SPAC from Churchill Capital is in talks to combine with two separate businesses and take them public simultaneously, according to Bloomberg. Easterly Alternatives is reportedly raising capital from LPs for a $100 million fund that will invest exclusively in SPACs.
Go back a couple of weeks and the rundown gets even more colorful. Playboy Enterprises is going public via SPAC. The chairman of Red Robin is backing a SPAC called Tastemaker Acquisition. There’s a SPAC called Climate Change Crisis Real Impact I Acquisition. And I already mentioned Shaquille O’Neal and Martin Luther King III, right?
It’s been a remarkable run—all the more so considering this year’s craze came almost entirely out of the blue. The frequency of SPACs has been on the rise in recent years, but 2020 represents a quantum leap, one that’s occurred despite the absence of any major changes to how they function or any other relevant regulations.
It’s a strange situation: Were investors underutilizing SPACs in the past, or are they overutilizing them now? It would seem like one or the other must be true.
Sure, there are reasons for this year’s boom. Some have cited the pandemic, arguing that the pricing certainty of SPACs makes them more appealing than IPOs in such a volatile market. Sponsors have grown more creative with the terms of SPACs, resulting in more dealmaking flexibility. There’s also the fact that blank-check deals have proven extremely profitable: Gores Group head Alec Gores made an $80 million profit off his aforementioned SPAC deal with United Wholesale Mortgage, according to Bloomberg.
But none of those factors tell the whole story. The SPAC boom is also a reminder that financial markets are a free-flowing experiment in mass psychology, where the Keynesian “animal spirits” can have as much of an impact on the movement of billions of dollars as anything so simple as logic or math. There’s a real fear of missing out, or what kids these days call FOMO. A psychologist might mention the bandwagon effect, where the behavior of others can become more influential on one’s own actions than anything else.
That is not to say the ongoing SPAC boom won’t work out for all the investors and companies involved. It is also not to say it will. It is just to say that it is weird.
If all your friends jumped off a cliff, would you do it too? What about if they were all starting SPACs?
2. Grub to go
Instacart raised new funding this week at a $17.7 billion valuation, surpassing DoorDash as the most valuable US food-delivery company with venture backing. GoPuff, which delivers convenience-store staples like snacks and over-the-counter medicines, banked $380 million from VCs at a $3.9 billion valuation. And GrubMarket, which delivers produce both directly to consumers and to other grocery stores and meal-kit companies, collected $60 million this week, with TechCrunch reporting a new valuation of up to $500 million.
3. Software unicorns
VCs crowned four new unicorns this week, all of whom operate in the software space. MessageBird raised $200 million at a $3 billion valuation for its Twilio-esque cloud communication platform. Unqork, the creator of a no-code software platform, reached a $2 billion valuation, while Tipalti, which makes accounts-payable software, was valued at north of $2 billion. That leaves Dialpad, a developer of AI-powered communications tools for businesses, which vaulted to a $1.2 billion-plus valuation with its Series E.
4. Restaurant woes
Ruby Tuesday filed for Chapter 11 bankruptcy protection this week, the latest private equity-backed restaurant chain to cross that particular rubicon during the pandemic. But fear not: The company plans to keep its restaurants open. Or, as the company’s CEO put it, “This announcement does not mean ‘Goodbye, Ruby Tuesday.’” Meanwhile, California Pizza Kitchen, another ailing chain with PE backing, reportedly called off its bankruptcy auction this week after failing to find a buyer.
5. Morgan Stanley mega-deals
Wall Street’s biggest banks have largely been quiet on the acquisition front during the decade since the end of the global financial crisis. But in recent days, Morgan Stanley made some noise. The investment bank agreed this week to acquire fund manager Eaton Vance in a $7 billion deal, mere days after completing a previously announced takeover of E-Trade for $13 billion. The two moves are evidence of Morgan Stanley’s diversification under CEO James Gorman.
6. Ballers
Patrick Mahomes, Anthony Davis, J.J. Watt, Naomi Osaka, Chris Paul and Christian McCaffrey are all some of the biggest names in sports. As of this week, they’re also all investors in Hyperice, a muscle recovery startup that raised new funding at a $700 million valuation. Malcolm Jenkins of the New Orleans Saints is also getting in on the act: He launched a new $10 million fund this week called Broad Street Ventures that’s funded entirely by Black and other underrepresented investors, including fellow NFL defensive backs Devin McCourty and Jason McCourty.
7. Keeping up with L Catterton
Longtime consumer products investor L Catterton led a $200 million investment this week in Icon Health & Fitness, the parent company of NordicTrack, iFit and other brands, marking the latest major bet on in-home fitness in recent months. The deal values Icon at over $7 billion, according to Bloomberg. L Catterton is also busy preparing for a notable exit: Leslie’s, a purveyor of pool supplies, filed for an IPO this week that Renaissance Capital reported could raise some $600 million.
8. Pharmaceutical finds
Bristol-Myers Squibb lined up a deal this week that its CEO described as “potentially revolutionary,” agreeing to pay $13 billion for Myokardia, a developer of promising treatments for cardiovascular diseases. In a smaller deal (but one that hits much closer to home for this native Seattleite), Rite Aid agreed to pay $95 million for Bartell Drugs, a family-owned pharmacy chain in western Washington that was founded in 1890.
9. Six-legged meals
Ynsect is an aptly named startup: The French company operates a vertical farm where it breeds insects to be turned into ingredients for animal and plant nutrition. It added $224 million in combined debt and equity to its Series C this week, taking the round’s total to $372 million. If not eating anything at all is more your speed than insect consumption, this week had something for you, too: Fastic, the developer of an app for intermittent fasting, raised $5 million in new funding.
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