Earlier today, we talked about how 2020 ushered in the boom of companies like Zoom (ZM) and new industry segments like alternative-beverages. And you already know all about what Bitcoin has been doing over the past few months.
And it’s likely you’ve become familiar with Special Purpose Acquisition Companies in recent months as well. SPACs as they’re called, are often referred to as blank check” shell corporations designed to take companies public without going through the traditional IPO process, to then later find an acquisition target. Once the SPAC absorbs the target, a new public company exists. It’s the formula popular companies like DraftKings (DFNG), Nikola (NKLA), and a host of others used to enter into the market in 2020.
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. Yahoo Finance cites data from SPAC Insider shows that shows through Tuesday, 204 SPAC IPOs had come to market this year, and on Tuesday alone, no fewer than 12 SPACs were announced. At this rate, 2020’s record year for SPACs might be eclipsed by the end of the week!
A month ago, Yahoo looked at SPACs as another micro-bubble, the likes of which have perked up in markets several times over the last few years. But data from a Goldman Sachs report published on Monday shows 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. 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 the enormous interest, SPACs have been generating from clients and the broader markets, expect firms like Goldman Sachs to stay on top of this boom throughout 2021.