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Sir Richard Branson walks into the new Virgin Galactic SpaceShipTwo during his deployment in the Mojave Desert, about a year and a half after the destruction of Virgin's latest rocket plane and the death of the test pilot.
Al Seib | Los Angeles Times | Getty Images
Hedosophia, the social capital of tech superstar Chamath Palihapitiya, buys a 49% stake (about $ 800 million) in Virgin Galactic for space flights. The enthusiasm is partly due to the unconventional but exciting investment – space – but also to the fact that social capital is perhaps one of SPAC's most successful investments, a previously boring domain that has become, with IPOs, an attractive investment vehicle.
Hard to believe, but the SPACs hardly existed two years ago. In short, a special purpose acquisition company, these are blank check companies created for the purpose of merging or acquiring other companies. They are usually trained by veterans in key industries or by well-known contractors. The speech is quite simple: "I am a famous person in the oil sector, in the technology sector, in the field of transactions, etc.) and I want to buy something, trust me."
That's what Chamath Palihapitiya did in September 2017. Here's the speech to investors: "We intend to focus our research on a target company operating in the technology industries."
That was it.
The trader generally values the PSPC at $ 10 and generally has two years to make an acquisition. That's what Social Capital did: sell 60 million shares at $ 10 in September 2017. That's $ 600 million, but Palihapitiya has not announced what it was investing in until then. Today;
It's a long time to wait for an investment, but it does not matter: SPACs – as well as IPOs – are sudden investment vehicles. 28 SPACs became public this year, raising $ 6.1 billion, which, at this rate, will easily exceed the record of 46 SAVS of 2018, according to Renaissance Capital.
Increasing popularity
Why are SPACs so suddenly so popular? It is useful to have a dynamic stock market and a dynamic IPO market, but there is also a growing interest in recruiting professional expertise to make purchases on behalf of investors.
"What you buy is a very experienced and highly attractive management team for investors," said Carolyn Saacke, director of financial markets operations at the New York Stock Exchange. , in 2017, when the first SPACs were launched on the NYSE. "They usually have a lot of experience in the field of mergers and acquisitions in the companies and industries from which they come, so it's certain that they'll be able to buy a company at a price." reasonable."
Other help for SAVS investors: There is an "exclusion clause". The proceeds of the IPO are initially held in a trust account which can only be accessed to make the acquisitions. Once the acquisitions are made, public shareholders can choose to redeem their shares for cash if they do not want to stay in the transaction.
Do SPACs bring money back to investors? This is not a simple question because companies can not do anything for more than a year before making acquisitions.
Bad balance sheet
But Matt Kennedy, who analyzes the IPOs and SPAC at Renaissance Capital, notes that the record is rather mixed: "On average, they do not succeed as well, but there have been exceptions."
He notes that since 2017, there have been 108 SAVS. The average return has been minimal of 2%, but this includes companies that have not made acquisitions.
Of the 22 that made acquisitions, the average return was a decline of 13.5%.
One of the reasons for the underperformance is what Kennedy calls a "research commission" that allows founders to buy a stake in the SPAC, essentially for nothing. In the case of the share capital, the original shareholders obtained 20% of the company at an insider price of 0.002 cents. This is not a typo: 0.002 cent. Public shareholders got the remaining 80% of the company for $ 10 per share.
This is a serious dilution.
Kennedy also notes that in most cases, investors also receive warrants to purchase more shares at an agreed price after the transaction is completed. They can also sell these mandates, which can bring additional value.
Despite the poor performance, as long as the market holds up, more and more SAVS will arrive. There are two this week alone, including Pivotal Investment Corp II, which plans to raise 20 million shares at $ 10 on the New York Stock Exchange on Friday. It is led by Jonathan Ledecky, co-owner of the New York Islanders and renowned investor.
What's he buying? Beats me: the company intends "to focus its research on North American companies in industries ready to undergo disruptions due to the constant evolution of digital technology."
That's pretty clear?
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