Another sign that the zoo has grown tired. “If you do not have your own SPAC, you are nobody.”
By Wolf Richter for WOLFSTRAAT.
The business of SPACs is setting beautiful records. A SPAC (Special Purpose Acquisition Company) is a ‘blank-check’ company without an operating activity that collects funds from investors through an IPO and then tries to use the funds to buy a new business. For the start-up business, acquiring through a SPAC is an alternative to a stock market. There is less disclosure compared to a standard scholarship. For Wall Street, there are huge fees to pay. And insiders, including those starting the SPACs, are making a lot of money. So all the building blocks are in place.
In 2020, an all-time record of $ 83 billion was raised by SPACs, six times as much as in 2019 ($ 13.6 billion), according to data from SPAC Insider. According to Dealogic, this was $ 83 billion more than all the funds SPACs raised in all previous years, and it blew through the $ 78 billion raised by standard bursaries in 2020, such as the Airbnb bursary. Everyone and their dog were busy with SPACs, from former House Speaker Paul Ryan to former NBA star Shaquille O’Neal, who is currently following the hottest stories.
And in 2021, the SPAC mania accelerated further. “If you do not have your own SPAC, you are nobody,” Peter Atwater, founder of Financial Insyghts, told the Wall Street Journal. In the first three weeks of 2021, there were already 67 SPACs, raising a total of $ 19 billion, more than in the entire year of 2019:
A special blend of exuberance in the market, blind confidence that this exuberance will last forever, and a total disregard for valuations is necessary to create this situation.
To see how far this mania has exploded in SPACs this year, we can look at the dollar raised per week on average. It seems that in 2021 $ 6.4 billion a week was raised compared to $ 1.6 billion a week in 2020. This is where we are so far:
There are currently 287 SPACs, sitting on about $ 90 billion in cash, now trying to chase startups in the hottest sectors of the moment, from any EVs to telehealth.
IPO shares soar.
Stocks after it became known have skyrocketed since the lows in March. The Renaissance IPO ETF [IPO], which follows the Renaissance IPO index, which includes the largest 80% of IPOs over the past two years, has risen by almost 240% since March 18. This left the S&P 500 index, which rose 72%, in the dust. since the low in March. This increase in the IPO index comes after spending approximately the same five years as the S&P 500 index (data via YCharts):
Fees from SPACs and IPOs are a goldmine for Wall Street Banks.
Banks have now reported their fourth quarter results, including the fees they earned from SPACs and IPOs. In 2020, the top six in equity fund underwriting – Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America, Citigroup and Jefferies – will earn $ 14.1 billion in fees from SPACs and IPOs, according to the Wall Street Journal, 89% higher than 2019:
So everyone gets rich on this mania in SPACs and IPOs and enjoys a wonderful old time. And after all the mania got rich and dropped fees and shares and had all the fun, there’s one more thing: in previous mania of this kind, the aftermath was very unfriendly to investors who made it all possible by buying of these stocks with that mixture of exuberance, blind confidence that this exuberance will last forever, and a total contempt for valuations. Ah yes, this time it’s different, everyone says again – another sign that the zoo has fallen into disrepair.
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