Spacs have raised US$23.9 billion ($36.3b) this year, globally, already eclipsing last year's record haul by 70 per cent, according to financial data provider Refinitiv. Almost all of that — US$23.6b — was generated in the US. Blank cheque companies now account for one in five dollars raised in initial public offerings: about three times the share of last year.
The investment banks that have helped to usher in Spacs have not been the same cohort known for winning coveted mandates on big-name tech IPOs in recent years. Cantor Fitzgerald, the midsized New York investment bank, was the top Spac underwriter last year, followed by Deutsche Bank.
Citigroup and Credit Suisse have also built sizeable Spac businesses, advising on many of the largest blank-cheque listings over the past three years and this year muscling in as the top advisers.
"People who have not been as experienced are trying to build an expertise," said Doug Adams, the global co-head of equity capital markets at Citi.
Citi has led all four Spac offerings from Michael Klein's Churchill Capital, a firm run by a former Citi dealmaker. Last month Klein caught the eye of bankers across Wall Street when one of his Spacs struck an US$11b takeover of US healthcare company MultiPlan.
Credit Suisse, meanwhile, has underwritten all three Spacs led by Chamath Palihapitiya, the former Facebook executive whose first blank cheque company merged with Virgin Galactic last year, thrusting Richard Branson's space travel group on to the stock market.
Bankers are now courting other buyout veterans and executives who could front their own Spacs. Chinh Chu, the former Blackstone "rainmaker", has launched four Spacs, including two this year with New York fund manager Neuberger Berman.
Bill Foley, an insurance executive, has launched three and is aiming to raise US$1.2b in a fourth unveiled this month. Bill Ackman, the billionaire hedge fund manager, last month unveiled his first offering, raising US$4b to hunt for a tech "unicorn" — the largest sum ever raised in a Spac.
"Brand name private equity firms and brand name public market executives brought a new light to investors and potential companies that wanted to merge with a Spac," said Bennett Schachter, Morgan Stanley's top Spac banker who joined last year from Goldman Sachs.
Goldman, which has ranked among the top five underwriters of Spacs since the boom began in 2017, has stood apart from its biggest rivals because it has launched its own blank cheque vehicles. The first, which listed in 2018, raised US$600 million and in February merged with Vertiv, a digital infrastructure group. The bank's second Spac raised US$700m in June.
The fees for bringing Spacs to life can be hefty. Banks typically earn 2 per cent of the proceeds when the IPO is finalised and a further 3.5 per cent when the Spac finds a company to buy and completes a takeover. While that is lower than the 7 per cent fee banks traditionally earn on the proceeds of a new listing, they also have other ways to drum up revenues.
The shell companies must often raise additional capital to fund their takeovers, for example. And as they search for targets, bankers are often pitching potential candidates to buy.
Privately held companies that would have otherwise explored an IPO have been drawn to Spacs because most of the financial terms are negotiated behind closed doors and finalised before a deal is announced. In a traditional flotation, by contrast, the pricing is "dropped in at the end", said Nagler of Kirkland.
That extra degree of certainty can give a lot of comfort, said bankers.
"What you're seeing is the tip of the iceberg from what is going on," said Niron Stabinsky, head of Spacs for Credit Suisse.
Written by: Richard Henderson, Eric Platt and Ortenca Aliaj
© Financial Times
