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Wednesday 3 March 2021
Goldman Sachs puts the SPAC boom in context.
Late last year we wrote about David Kostin’s equity strategy team at Goldman Sachs declaring 2020 the year of the SPAC.
In the few months since this report, the trend has only accelerated.
Kostin’s team on Monday released their latest update on the space and the terrible pace at which these vehicles hit the market.
And uncomfortable can be an understatement.
By February 26, about 175 SPAC sponsors had debuted on the public market, raising a total of $ 56 billion. Throughout 2020 – a record year for IPAs for SPAC – 223 SPAC sponsors came on the market.
Data from SPAC Insider shows that about 204 SPAC IPOs hit the market by Tuesday; On Tuesday alone, no less than 12 SPACs were announced, according to data from Street Insider. At this rate, the record year for 2020 SPACs could be obscured by the end of the week. SPAC Insider data show that there were 226 total IPAs for SPAC from 2009-2019.
As a quick reminder, SPAC is an abbreviation that stands for the acquisition of special purposes, especially known as a “blank check” company. These are publicly traded entities with shares that do not represent claims on the business of an underlying company, but rather reflect ownership in a pool of capital that will later be used to acquire an existing business.
Back in January, we saw SPACs as another microbubble, which has gained traction in markets several times over the past few years. However, Goldman’s data shows that the capital behind these vehicles represents a much more powerful market dynamic than speculative flows to crypto projects from 2017 or pot stocks.
“SPACs could generate more than $ 700 billion in procurement activities over the next two years,” Goldman writes. “We estimate $ 103 billion in SPAC capital is actively seeking an acquisition target. The total ratio of the target enterprise value at the time of the merger announcement to the associated SPAC capital was 7x this year, a jump of 6x in 2020 and only 3x during the 2010s. If the YTD ratio remained the same, SPACs would acquire businesses worth more than $ 700 billion [enterprise value]. “
Given the interest of customers and the broader markets, we would expect Kostin and the team to stick to this theme. And the graph below gives us the simplest way to think about what an implicit value of the SPAC universe might be – just take the total amount of SPAC capital looking for an acquisition and multiply it by 7.
And while multiple SPAC transactions are increasing, Goldman also finds that the value of companies advertised through this channel is rising, as is the rate at which sponsors are using their capital.
So far this year, the average value of a company disclosed via SPAC is $ 2.9 billion, compared to $ 1.7 billion last year and ~ 800 million last decade, according to Goldman’s data. Sponsors also find targets 175 days after their IPO, less than half the time sponsors spent in 2020 and below average 487 days in the 2010s.
By Myles Abroad, reporter and anchor for Yahoo Finance Live. Follow him @MylesUdland
What to know today
Economy
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07:00 ET: MBA Mortgage Applications, week ended 26 February (-11.4% during previous week)
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08:15 ET: ADP employment change, February (200,000 expected, 174,000 in January)
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09:45 ET: Markit US Composite PMI, February final (58.8 in previous print)
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09:45 ET: Markit US Services PMI, Final in February (58.9 expected, 58.9 in previous print)
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10:00 AM ET: ISM Services Index, February (58.7 expected, 58.7 in January)
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14:00 ET: Federal Reserve releases Beige Book
Earnings
Pre-market
Na-mark
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16:00 ET: Splunk (SPLK) is expected to report adjusted earnings of 3 cents per share on revenue of $ 677.81 million
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16:00 ET: Octa (OKTA) is expected to report an adjusted loss of 1 cent per share on revenue of $ 222.05 million
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16:00 ET: Snowflake (SNOW) is expected to report an adjusted loss of 17 cents per share on revenue of $ 178.55 million
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16:05 ET: Vroom Inc (VRM) is expected to report an adjusted loss of 37 cents per share on revenue of $ 401.85 million
Top news
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Josh Kushner’s Oscar Health Expands IPO to Raise $ 1.4 Billion [Bloomberg]
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