- Special-purpose acquisition companies — aka “blank-check” companies — are having a moment on Wall Street. The investment vehicles have raised more than $40 billion already in 2020 and are on track to more than triple last year’s total of $14 billion.
- SPACs have recently attracted bold-faced names such as hedge-fund titan Bill Ackman, LinkedIn founder Reid Hoffman, Silicon Valley power player Dragoneer Investment, and “Moneyball” star Billy Beane.
- But there’s an ecosystem of advisors, salespeople, and lawyers pitching blank-check companies to investment platforms and wealthy people as viable financing options.
- We spoke with more than a half dozen industry insiders to come up with a list of the market’s most influential players.
- Visit Business Insider’s homepage for more stories.
One of Wall Street’s most talked-about trends is the wave of special-purpose acquisition companies, or SPACs, that have launched IPOs at such a torrid pace that they’re on track to raise more than triple last year’s totals.
One-hundred and twelve SPACs, aka “blank-check firms,” have raised more than $40 billion so far this year — compared to 59 last year that raised less than $14 billion — according to the website SPAC Research. There are now 183 shell companies with $57 billion to spend on bringing other companies public, the data provider said.
More than the money is that the vehicles are now seen as a viable alternative for companies looking to go public in a way that they haven’t ever been before. Famed Silicon Valley investor Bill Gurley, an outspoken proponent for rethinking the traditional IPO process, lent his support to SPACs in a recent blog post touting their benefits for certain companies.
The companies, which initially have no revenue or operating assets, raise money from investors by selling shares, typically for $10. They then put that money into a trust until it’s time to buy another company.
The development of the SPAC market over the past few years is often credited to the sponsors of the vehicles, the people who launch them in return for a stake in the merged company once the SPAC has found a willing seller.
In recent months boldface names like hedge-fund titan Bill Ackman, LinkedIn founder Reid Hoffman and Silicon Valley power player and Dragoneer Investment founder Mark Stad have raised funds for SPACs. Ex-Citigroup investment banker Michael Klein completed the largest SPAC-led merger in history this year.
But there’s also an entire ecosystem of advisors, salespeople, and lawyers increasingly pitching blank-check companies to investment platforms and wealthy people. Asset managers like Fidelity, T. Rowe Price, and Capital Research are also increasingly participating in the market, lending an additional aura of respectability to what had once been considered a back corner of the financial markets.
Historically, SPACs have been used as an alternate way into the public markets for companies that didn’t have the governance threshold to attract investors in a traditional IPO, or a last-ditch effort for investors to exit their stake. The traditional process requires filing a prospectus, engaging with the Securities and Exchange Commission and facing scrutiny from discerning investors.
Inevitably, that meant the deals didn’t always work out well and the market had a history of failures and occasional cases of fraud. In 2005, for example, the SEC removed some protections afforded other entities after some of the shell companies were implicated in fraud, according to a Harvard Law School white paper.
As the market has gained more respectability, the names of the players driving its growth have changed. Business Insider spoke with more than a dozen people in the industry to come up with a list of the current market’s most influential players.
Underwriters typically don’t earn a lot of fees when they underwrite the SPACs because the IPO is so simple there isn’t much work to do.
But they do set themselves up for future business, including the fees that come from helping to advise on the eventual merger transaction. More than one banker on this list counts as their job everything from taking SPACs public, to helping them find and vet targets, and then advising on the deal once one has been chosen.
Add that up and it becomes a lucrative business. For Credit Suisse, described below, SPACs are the largest business in the Swiss bank’s equity capital markets unit.
David Batalion, Cantor Fitzgerald
Cantor is a recurring fixture at the top of the league tables for SPAC underwriting. It ranked first in 2018 and 2019, with $1.6 billion and $3.1 billion in deal volume, respectively, according to SPAC Research. As the market has heated up, larger and more brand name banks have taken on some of the business, pushing Cantor to sixth place on the 2020 leaderboard with $2.5 billion.
Leading the efforts at the firm since 2014 is David Batalion, an investment banker focused solely on SPACs. A top recurring client is Betsy Cohen, the former CEO of The Bancorp, and her son Daniel Cohen, chairman of financial services firm Cohen & Co., where Batalion worked before joining Cantor.
Cantor has helped the Cohens raise six SPACs since 2015, public documents show. The first, Fintech Acquisition Corp. 1, bought payment processor CardConnect in 2016 at a $350 million valuation, which was then acquired a year later by First Data for $750 million. Another, Fintech Acquisition Corp. III, raised $345 million in 2018 and in August paid $1.3 billion for Paya, a digital payments platform.
Batalion and Cantor this year also advised on PropTech Acquisition Corp., a blank-check firm that in July merged with home-services marketplace Porch.com at a nearly $525 million valuation.
“Target companies like that the process is less risky than a traditional IPO in that the deal valuation is set before the public announcement and SEC review process, rather than the night of pricing,” Batalion told Business Insider. “Many traditional IPOs either fail or leave too much money on the table. The SPAC helps fix this.”
He added: “And investors like the product because as we sit here on the heels of a record long bull market. It’s a way to invest in a security where you preserve ‘equity upside’ with limited downside up until the SPAC vote.”
John Chirico, Citigroup
When one looks at the league tables, there’s one name that’s been there year in and year out, and that’s Citigroup.
The underwriter has ranked fourth or higher in SPACs every year going back to 2015, and 2020 is no different. It’s currently ranked second, according to SPAC Research.
This year, the firm was the sole underwriter on Ron Burkle’s SPAC, as well as the lead left on Bill Ackman’s vehicle, which raised the most ever for a SPAC when it sold $4 billion in shares in July.
The bank also took the lead on the SPAC launched by Silicon Valley power player Dragoneer Investment Group. That firm’s entrance into the SPAC game led more than one person Business Insider spoke with to suggest there are more like it on the horizon, examples of deep-pocketed Silicon Valley players taking a fresh look at what had been a backwater of the financial markets.
Citigroup has seen the potential in the SPAC space for years, said John Chirico, cohead of North America for Citigroup’s corporate and investment banking business. The key is designing a deal that meets the needs of three key players in any transaction — the sponsors, the investors and the target company — which can be figuratively represented by the corners of a triangle.
“It’s a tug of war,” Chirico said. “You want to stay in the middle of the triangle, and we tell each of those parties that if they want something, they generally have to give something else up.”
Chirico ascribes his company’s position in the underwriter rankings as an outgrowth of Citigroup’s equity capital markets team having worked together for decades. That could be Tyler Dickson, the head of the combined corporate bank and underwriting group, who started his 30-year career in equity capital markets, or other senior ECM leaders who have worked together for decades such as Chirico, Doug Adams, or Phil Drury.
Niron Stabinsky, Credit Suisse
Another bank that has distinguished itself this year in the league tables is Credit Suisse. The Swiss bank is ranked first, having completed 19 deals worth $6.7 billion as either the sole manager or lead left bank.
The bank’s effort is led by Niron Stabinsky, a managing director who has been working on SPACs for 15 years, going all the way back to when the vehicles were still associated with companies that didn’t always have the governance qualities required to sell shares to the public through a traditional IPO.
At Deutsche Bank in 2005, Stabinsky led the first SPAC underwriting to be done by a bulge-bracket bank when he helped bring Cold Spring Capital to market to focus on an acquisition in the time shares space. Stabinsky led Deutsche Bank’s Los Angeles office and played a leading role in the IPOs for private-equity firms Blackstone, Apollo, Carlyle, and Fortress.
He was there in 2007-08 when SPACs enjoyed their previous spike in popularity.
“When I started doing SPACs it was more of a hobby rather than a full-time job,” he said. “The structure was not really well understood. None of us really understood it when we were doing it.
“Now it’s virtually 100% of what I do,” he said, adding that since those early days the market has matured significantly, grown exponentially, and attracted higher-quality sponsors, target companies, and investors.
Since joining Credit Suisse in 2015, Stabinsky has focused on SPACs almost full-time, building it into Credit Suisse’s top business in equity capital markets. That puts him in the room when the SPACs are sold to the public for the first time all the way through the merger process after the management team has identified its target.
Among the notable deals Credit Suisse has led this year are the one sponsored by former Goldman Sachs president and Trump advisor Gary Cohn. The bank has also led both of the SPACs sold by Chamath Palihapitiya, an early Facebook employee and successful venture capitalist, and there are more in the works.
Palihapitiya, who already used one of his SPAC’s to purchase Virgin Galactic last year, recently announced that he would be buying the SoftBank-backed home-buying website Opendoor with another of his vehicles.
Simon Watson/Olympia McNerney, Goldman Sachs
One bank that comes up in every conversation about SPACs is Goldman Sachs. The investment bank’s asset-management arm was early to the latest SPAC craze when it launched a vehicle with former Honeywell CEO David Cote in 2018. It’s led several others since then.
It’s also near the top of the league table this year in terms of underwriting share, handling 17 deals worth $4.9 billion through September 28.
This year, the bank has been the sole bookrunner on the shell company launched by Kevin Hartz, an investor in Uber and Airbnb, as well as a blank-check company sponsored by former Goldman Sachs private-equity investor Gerry Cardinale, who teamed up with “Moneyball” star Billy Beane.
Goldman’s SPAC team is led by Simon Watson, a partner based out of the UK. In the Americas, the SPAC group is led by Olympia McNerney. McNerney has become a vocal proponent for the market, appearing on the bank’s podcast and speaking with journalists for market stories. (Stabinsky, too, does a lot of media.)
Niccolo de Masi, the sponsor of a two SPACs Goldman has underwritten, says the enthusiasm for SPACs goes all the way up to investment-banking chief Gregg Lemkau and CEO David Solomon. The bank declined to comment for this story.
“Goldman is as picky about their SPAC IPOs as they are about traditional IPOs,” said de Masi, who sold shares in dMY Technology Group earlier this year with Goldman’s help. “Being treated as a Goldman IPO is very valuable to me.”
The SPAC space wouldn’t have developed into what it is today without the work of lawyers who’ve been at the head of table for some of the market’s most important innovations.
One change that opened up the market nearly a decade ago was separating the redemption process from the shareholder vote on approving the merger. Another key area mentioned by those Business Insider spoke with has been around the private investment in public equities, or PIPE, investments that help cement the merger.
Derek Dostal, Davis Polk
As SPACs have gone more mainstream, they’ve attracted some of the larger, diversified, well-known law firms.
Among the most savvy of the newer entrants, according to people Business Insider spoke with, Davis Polk has gone from doing a couple of SPAC offerings a year to representing underwriters on over a dozen IPOs — and at least one issuer, VG Acquisition, that filed for a $400 million offering on September 16.
The firm’s practice is led by Derek Dostal. A banker who’s worked with Dostal said he’s likely the “most thoughtful” lawyer out there because “he thinks about the product.”
The firm primarily advises underwriters, handling $7.5 billion worth of deals so far in 2020. Those include vehicles sponsored by Bill Foley, former Blackstone exec Chinh Chu, and True Wind Capital.
Ellenoff Grossman & Schole
Even as SPACs grow in popularity and acceptance, some of the original law firms are hanging on. One of those is EGS, a longtime player in the SPAC market after setting out to develop a focus on the space.
Led by Doug Ellenoff, the firm has done hundreds of IPOs, including recent representations of underwriters such as FTAC Olympus Acquisition, which raised $750 million, and sustainability-focused Northern Genesis Acquisition.
It’s also done work for issuers like TWC Tech Holdings II, the second SPAC backed by True Wind Capital, and Vesper Healthcare Acquisition, a $400 million vehicle led by the former CEO of Allergan.
Alan Annex, Greenberg Traurig
Greenberg Traurig, too, has a long history in SPACs. Alan Annex, who cochairs the firm’s corporate practice, highlighted its role in the development of the “Crescent term,” a warrant price-adjustment provision that is now common. The firm also worked on the Prisa transaction in 2010, which decoupled a shareholder’s ability to vote on a proposed merger from the ability to cash in one’s shares, known as the redemption, which reduced the risk of a merger being rejected.
“There are a lot of regulatory things around the SPAC that will change from time to time, but there’s also been changes to the product,” he said.
Greenberg has worked on at least seven SPAC offerings this year, according to SPAC Research. Major M&A mandates include representing Nebula Acquisition in its tie-up with financial risk analytics company Open Lending and helping VectoIQ, which also tapped Greenberg for its IPO, strike a deal to take the electric-truck company Nikola public.
On Sept. 23, Greenberg represented United Wholesale Mortgage in a merger with a $425 million SPAC that included a record valuation for a SPAC target of over $16 billion, according to an announcement.
Paul Tropp, Ropes & Gray
Another latecomer that’s making up ground is Ropes & Gray, the Boston-based law firm founded in 1865. The firm has been working on an increasing number of deals lately for both underwriters and issuers, with one banker saying his team “loved the way they were thinking about M&A.” Paul Tropp, who joined the firm from Freshfields in 2018, co-chairs its capital markets practice and acts as the face of the SPAC practice.
The firm has represented underwriters on more than a dozen transactions this year, including Ackman’s $4 billion Pershing Square Tontine Holdings, and issuers including Dragoneer Growth Opportunities Corp, a SPAC backed by the Silicon Valley investment firm of the same name.
Gregg Noel, Skadden
Few law firms are as white-shoe as Skadden, which has become a frequent presence in both IPOs and mergers. Noel, a leading partner in its capital markets practice, has helped the firm work on more than two dozen IPOs so far in 2020, representing underwriters in at least 16 of them and issuers on at least 10. Two of them raised more than $800 million: Cohn Robbins Holding, backed by former Trump advisor Gary Cohn, and CC Neuberger Principal Holdings II, sponsored by former Blackstone executive Chinh Chu.
“We were working with the investment banks early on, when the product started migrating from the smaller I-banks up to the bulge bracket,” said Noel, who worked on his first SPAC in 2006.
Skadden also has an active practice in helping complete the merger process. The firm helped GS Acquisition Holdings take the infrastructure tech company Vertiv Holdings public, and it also represented sports gambling tech firm SBTech in Diamond Eagle Acquisition Corp’s acquisition of SBTech and DraftKings.
Joel Rubinstein and team, White & Case
When capital markets partners Joel Rubinstein, Jonathan Rochwarger, and Elliott Smith moved to White & Case from Winston & Strawn this summer, it was the talk of some SPAC circles.
Rubinstein “is the most sought-after man in the SPAC business,” according to Niccolo De Masi, who said the lawyer has played a critical role in the structuring of PIPE deals that are attracting some of the world’s largest asset managers.
Since arriving at White & Case, Rubinstein and his team have stayed busy on SPAC IPOs, with one industry source saying their team is seeking to add associates to deal with the workflow. They have continued to represent the big banks, representing the underwriters for the Churchill Capital entities backed by investment banker Michael Klein, and Goldman Sachs on the $500 million IPO of Cardinale’s sports-oriented RedBall Acquisition Corp.
They’ve represented SPACs run by entertainment execs Harry Sloan and Jeff Sagansky, helping their SPAC Diamond Eagle Acquisition Corp. go public and then representing it in its acquisition of DraftKings and SBTech. In June, they helped the company, now called DraftKings, sell even more shares.
They also represented Sloan and Sagansky on another SPAC, Flying Eagle Acquisition Corp., working on both its IPO and its move to take mobile gaming company Skillz public.
The money managers
Talk to enough sponsors, bankers, and lawyers, and you’ll come to understand that the current enthusiasm for blank-check companies wouldn’t exist without the arrival of deep-pocketed and blue-chip capital providers now getting interested in the space.
If in the past SPACs were sold to retail investors, they’re now increasingly being bought by institutional investors signing onto a sponsor’s vision, and then financing it through the provision, most often, of a private investment in public equity (PIPE) at the time the SPAC merges with the target company.
Many of the investments, particularly for Neuberger Berman and Fidelity, are often done out of mutual funds and purchased with client funds. Even the hedge-fund players are using client funds, in their case using institutional money collected from pension funds, foundations, and endowments.
“In general, we see the best PIPE investors as those that know the underlying industry the best, are seen as ‘thought leaders’ in the space, and have the longest term investment time horizon,” Batalion, the Cantor Fitzgerald banker, said.
A separate banker added that another mark of a good investor was someone willing to publicly put their name behind a deal, saying “the highest breed of PIPE investor is that mutual fund who will put their name on the cover of the press release,” one banker said. “Fidelity does that.”
Charles Kantor, Neuberger Berman
As one of several Neuberger Berman portfolio managers involved in SPACs, Charles Kantor represents one half of a blank-check power couple that has orchestrated two marquee transactions in 2020.
The Neuberger Berman portfolio manager has teamed up with CC Capital’s Chinh Chu with the intention of launching a series of SPACs. The first, CC Neuberger Principal Holdings I, was more than three-times oversubscribed raised more than $400 million in late April, according to Reuters.
The second SPAC launched at the end of July and doubled the first in size, hauling in nearly $830 million in proceeds.
The pairing is a smart one, one banker said, as it matches complementary skill sets. While Chu boasts a track record investing in big deals, Kantor brings public-markets experience to the table to discern how a company will be received by the broader investment community.
Cliff Greenberg, Baron Funds
For Cliff Greenburg, a small-cap fund manager at Baron, SPACs allow him to invest more capital and at better prices than a traditional IPO.
“We have great expertise and relationships with most of the SPAC sponsors and underwriters and we are often brought into the process early to learn about the companies in which these pools are interested in investing,” Greenberg wrote in a May investor note.
Another bonus to SPACs is that he can more thoroughly vet an investment than with a traditional IPO.
“Another advantage is there is more disclosure and more time to do due diligence. You can learn more about a SPAC’s acquisition target, see projections, and communicate with management,” Greenburg told IPO Edge in a Q&A. “I take advantage of the ability to meet these companies and get to know them well before investing.”
Greenberg prefers to invest in companies, rather than blind pools of capital, and already has a couple winners to his name. In 2019 Baron invested in payments processor Repay Holdings as it merged with Thunder Bridge, a $200 million SPAC formed by Monroe Capital. Baron currently holds a 7.3% stake worth $92 million.
The fund also invested in the Churchill Capital SPAC that formed in 2019 and then merged with Clarivate, an information services company that’s trading at all-time highs with a market cap of $11.1 billion. Baron’s 1.7% stake is worth $145 million.
Industry bankers told Business Insider that a trio of portfolio managers — Dan Duggan, Jason Roth, and Ken Waitz — lead SPAC efforts at Millennium Management, the hedge fund managed by billionaire Izzy Englander.
The blank-check effort that’s garnered the most buzz for Millennium is RedBall Acquisition, the sports-focused vehicle led by Billy Beane.
Beane is the Oakland Athletics exec made famous by “Moneyball,” a book later turned into a Hollywood blockbuster.
Millennium revealed a nearly 8% stake in the venture in August after RedBall raised $575 million in its IPO.
RedBall will pursue “businesses in the sports, media and data analytics sectors, with a focus on professional sports franchises,” filing documents with the SEC showed.
The asset-management behemoth — it now handles more than $3.3 trillion — likes to throw its weight around in the SPAC market. Bankers say the firm’s stature makes it a sought-after investor; the Fidelity imprimatur on a blank-check firm projects credibility to the rest of the investing community.
William Danoff, the 30-year company vet who manages its $139 billion Contrafund portfolio, is said to be one of the key decision makers in signing off on SPAC investments.
Marquee efforts that have earned the Fidelity stamp of approval include Flying Eagle Acquisition Corp, which recently agreed to merge with mobile-gaming company Skillz, valuing the company at $3.5 billion. Fidelity also invested in QuantumScape, a battery maker backed by Volkswagen that merged with Kensington Capital in September at a $3.3 billion valuation.
Another high-profile deal has come under scrutiny. Electric-truck maker Nikola went public in March in a merger with VectoIQ Acquisition Corp, backed by Fidelity and ValueAct. Nikola has since been bitten by a short-seller report in September that questioned its technology and alleged false statements.
Nikola rebutted the allegations, but the stock has plummeted and founder Trevor Milton has stepped down as executive chairman. Bloomberg News reported that Fidelity was among the backers who pushed for Milton’s removal as CEO, before the allegations surfaced.
As Business Insider spoke with bankers, lawyers, and sponsors about the market, it was the spectre of deals gone bad that worried everyone in this burgeoning market. A few more like Nikola, they worry, and the opportunity in the SPAC market could shut quickly.