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Wednesday, March 3, 2021
Goldman Sachs puts the SPAC boom in context.
Late last year, we wrote about David Kostin's equity strategy team at Goldman Sachs declaring 2020 the year of the SPAC.
In the few months since this report, the trend has only accelerated.
Kostin's team on Monday published their latest update on the space and the torrid pace with which these vehicles are coming to market.
And torrid might be an understatement.
Through February 26, some 175 SPAC sponsors have debuted on the public market raising a total of $56 billion. In all of 2020 — a record year for SPAC IPOs — some 223 SPAC sponsors came to market.
Data from SPAC Insider shows that through Tuesday, some 204 SPAC IPOs had come to market; on Tuesday alone, no fewer than 12 SPACs were announced, according to data from Street Insider. At this rate, 2020's record year for SPACs might be eclipsed by week end. SPAC Insider data shows that from 2009-2019, there were 226 total SPAC IPOs.
As a quick reminder, SPAC is an acronym that stands for Special Purpose Acquisition Company, often referred to as a "blank check" company. These are publicly-listed entities with shares that don't represent claims on the business of an underlying company, but instead reflect an ownership stake in a pool of capital that will later be deployed to acquire an existing business.
Back in January, we looked at SPACs as another micro-bubble, the likes of which have perked up in markets several times over the last few years. Goldman's data, however, shows that the capital behind these vehicles represents a much more potent market dynamic than speculative flows into 2017-era crypto projects or pot stocks.
"SPACs could generate more than $700 billion in acquisition activity in the next two years," Goldman writes. "We estimate $103 billion in SPAC capital is actively searching for an acquisition target. The aggregate ratio of target enterprise value at merger announcement to associated SPAC capital has been 7x this year, a jump from 6x in 2020 and just 3x during the 2010s. If the YTD ratio were to hold, SPACs would acquire firms worth more than $700 billion of [enterprise value]."
Given interest from clients and the broader markets, we'd expect Kostin and team to stay on this theme. And the chart below gives us the simplest way to think about what an implied value of the SPAC universe might be — just take the total amount of SPAC capital seeking an acquisition and multiply it by 7.
And while multiples on SPAC deals are going up, Goldman also finds that the value of companies taken public via this channel are rising as is the speed with which sponsors are deploying their capital.
So far this year, the average value of a company set to be taken public via SPAC is $2.9 billion, up from $1.7 billion last year and ~$800 million last decade, according to Goldman's data. Sponsors are also finding targets 175 days after their IPO, less than half the time sponsors spent searching in 2020 and down from an average of 487 days in the 2010s.
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