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TIT SHOWS of After-sales service, or “special purpose acquisition company,” has worried Wall Street bankers for the past year. Part of the reason is that vehicles, which list a shell company on the stock exchange and raise capital before looking for a private company to merge with, are often presented by their backers as an alternative to an IPO. (Initial Public Offering). Large banks charge considerable fees on their Initial Public Offering companies. For some, the fact that SPACs have muscularity is an unfortunate development. As voracious buyers of private companies, however, After-sales services attract the attention of private equity (AT) barons on Park Avenue in New York as well as on Wall Street.
Since early 2020 After-sales services have swallowed up nearly $ 200 billion in capital. The way they are constructed makes them prone to overpaying companies. Creators don’t see any compensation unless they strike a deal with a merger goal, which often has to be done within two years. The remuneration of the founders is generally 20% of the shares After-sales service helps to issue in the new public company, given to them for a small fee. This means that even though stocks plunge after the shell company merges with its target, the founders are still well paid. Their motivation is therefore to do whatever they can, at high prices if necessary.
This tendency to overpay is both a blessing and a curse for AT. If a AT the company seeks to offload one of its portfolio companies, then to find a After-sales service buying it is an interesting prospect. In March Blackstone and HVAC Capital Partners, two AT stores, tripled their money when they sold Paysafe, a payment platform, through a After-sales service merger led by Bill Foley, an insurance executive. After Blackstone made a record $ 1.75 billion first-quarter profit, Jon Gray, its chairman, noted on a earnings call that SPACs had emerged as a new exit option.
But AT companies must also buy private companies for their new funds, ideally at low valuations if they are to achieve the juicy returns their investors expect. Little is known publicly about the agreements that AT companies are lacking, but reports abound of SPACs offering 20 to 50% more for companies than the most optimistic valuations of analysts in AT stores.
A further complication in the relationship between blank check vehicles and AT do some AT the giants settle down After-sales services themselves. Apollo, for example, has launched five in recent years. This could pose a dilemma: if a target company were to be purchased through the private branch, for the benefit of investors in the AT funds, or through the public arm, for the benefit of investors in the After-sales service? the After-sales service binge might give juicy returns for AT investors who bought a fund ten years ago. But delicate choices are looming.
This article appeared in the Finance & economics section of the print edition under the title “Frenemies”
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