SPAC Boom has some disadvantages

SPAC Boom has some disadvantages

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There is a new saying circulating on Wall Street, Andrew writes in his last column. It’s not in good taste, but it captures the new trend that is transforming the financial world: “I know more people who have a SPAC than Covid,” the financiers keep telling Andrew. (We warned you.)

The boom in the blank check company shows no signs of slowing down, with SPACs – or special-purpose acquisition companies – raising nearly $ 26 billion in January, a monthly record in a bull market. These listed shell companies exist only to find a private company to buy and go public. SPACs typically acquire a target around five times their size: with more than 300 of those funds standing at around $ 100 billion in cash currently seeking acquisitions, this implies $ 500 billion in financial firepower.

“Every friend is launching a SPAC,” billionaire fund manager Bill Ackman told Andrew. “It’s like, ‘Oh, yes, I have one too.'” Ackman’s SPAC is the largest, raising $ 4 billion last year. (He has yet to set an acquisition target.) Other funders participating in SPAC-tion include technology investor Chamath Palihapitiya, veteran banker Michael Klein and acquisition specialist Alec Gores, all of whom have multiple SPACs. Yesterday, former NFL quarterback Colin Kaepernick applied for his own SPAC.

“As a guy who was closing deals in the market in 1999, it’s exactly as it was then”, said Terence Kawaja, the founder of boutique bank Luma Partners. (He worked as a banker on the sale of Time Warner to AOL.) “I care about public investors.” There are several misaligned incentives between the sponsors who place the initial capital of a SPAC and the investors who come after, especially after the purchase of a company:

  • Sponsors often say that they have invested in SPAC businesses, aligning them with other investors. But they also take big bets essentially for free, so, as Andrew writes, “they are partly playing with the house money”.

  • Large traditional investors who put money into a SPAC business generally obtain favorable terms that guarantee a modest but predictable return, no matter what.

  • Sponsors owe fiduciary duty to investors in the acquisition targets, and few seek so-called fair opinions to validate the price they are paying.

  • SPACs generally must use the money they have raised for an acquisition within two years or return it, encouraging them to obtain any business done, rather than good.

This does not mean that traditional IPOs are better, as Andrew explains (speed and certainty make SPACs more attractive to many of the acquired companies). And some sponsors are finding ways to make SPACs more friendly to all investors.

President Biden meets with CEOs to boost his stimulus plan. Gap leaders JPMorgan Chase, Lowe’s and Walmart met with Biden to discuss his $ 1.9 trillion proposal and efforts to raise the minimum wage to $ 15 an hour.

Day 1 of the impeachment trial. The Senate voted 56-44 that the procedures were constitutional, after House Democrats’ impeachment administrators represented disturbing highlights of the January 6 riot on Capitol Hill. Former President Donald Trump, accused of inciting violence, would be furious at the defense of his legal team.

A real estate giant may try to sever ties with Trump’s business. Vornado is considering buying the Trump Organization’s stakes in jointly owned office towers in Manhattan and San Francisco, according to The Wall Street Journal. Vornado boss Steve Roth allegedly believes that potential buyers have moved away because of their association with Trump.

Salesforce will permanently allow some remote work. The software giant will allow most of its 54,000 employees to work from home at least two days a week, and some full-time. This could transform San Francisco, where Salesforce is by far the biggest employer.

Huawei challenges its status as a threat to national security. The Chinese telecommunications giant has filed a lawsuit in the United States Fifth Circuit Court of Appeals to review an FCC decision issued in December by the Trump administration, which prevents it from selling equipment to American companies.

The United States Chamber of Commerce named Suzanne Clark as its new CEO Replacing Tom Donohue after her 22-year term, she is the first woman to head the Chamber in its 109-year history. The Times was the first to speak to Clark about his plans for the country’s largest corporate lobbying group.

“The Chamber has a unifying economic agenda and we will work with anyone who wants to advance it,” he said. Said Mrs. Clark. This may be easier said than done, since the group has been closely aligned with the Republican Party for much of its predecessor’s term. His most difficult challenge may be to balance dismayed Republicans with the group’s new allies and Democrats who have historically viewed him as an antagonist.

  • After joining the Chamber in 1997, Ms. Clark left in 2007 to work for the Potomac Research Group and the National Journal Group. She returned in 2014 and was promoted to president in 2019. She also serves on two corporate boards.

It takes control while the company rethinks its relationship with politics, embracing social issues and reevaluating the effect of political donations, especially after the Capitol riot. Ms. Clark has already lobbied to modernize the Chamber’s platform, focusing on issues such as narrowing the racial wealth gap and addressing climate change. Still, many basic principles remain the same: it is against raising the federal minimum wage to $ 15 an hour and reversing Trump’s corporate tax cuts.

Ms. Clark said that companies must strike a balance between financial results and their role in society. “Part of our job is to help a company perform well – it is advocacy work where we say we want to create the right conditions for job creators to prosper,” she said. “But the other part of our job is to help companies do good, whether it’s ESG, whether it’s equal opportunities, or finding out about any of the issues that CEOs are increasingly being asked about.”

It’s over? GameStop shares fell 86% from peak at the height of the meme-stock craze. In terms of market capitalization, the drop eliminated about $ 20 billion from the retailer’s value. The pattern of expansion and decline is similar for AMC, Bed Bath & Beyond and other companies swept by an apparently short-lived frenzy.

As the pandemic hammers the commercial property markets in London and New York, landowners are seeing their traditional power wear out. Some are asking for a review of rental laws.

London owners were forced to give their tenants a vacation, Eshe Nelson of The Times writes. Concessions include holiday rentals and leases in which tenants pay lower basic rent, but add a percentage of gross revenue. Some tenants used a company voluntary agreement, similar to a pre-established bankruptcy filing in the United States, to demand better terms.

  • There are still big challenges, Eshe tells us: “There are many more companies wondering how they are going to pay the rent months, which increased while their doors were closed. In Britain, this is quite urgent because the eviction moratorium is due to expire at the end of March. Tenants and homeowners need to find a sustainable way out ”. (Readers: If you are facing this challenge, getting a vacation rental, changing your rental terms or facing foreclosure, contact us.)

In New York, big tenants are also backing down. Condé Nast is withholding $ 2.4 million in rent from the One World Trade Center due last month as part of a dispute with its owners. New York homeowners also offer several months of free rent and money for property improvements.

Cynthia Lummis is a livestock farmer, libertarian and the only Bitcoin holder known in the Senate. Wyoming Republican, a vocal cryptography advocate, saw an opportunity after Tesla’s $ 1.5 billion Bitcoin investment made headlines this week: She asked Elon Musk on Twitter if he had considered moving to his home state, boasting that “he has the best laws for digital assets”. Ms. Lummis made the suggestion “because of that pioneering spirit that we share,” she told DealBook.

“We cannot pretend that this is a fad”, Mrs. Lummis said. She is on the Senate Banking Committee, among others, and is starting a Financial Innovation Committee where she will try to persuade colleagues to follow the Wyoming path. The state has attracted crypto companies with fintech regulations that make it more attractive to set up companies there, the senator explained. Investments in bitcoin from Tesla and other companies and concerns about dominating Chinese fintechs highlight the need for federal laws, she said.

“Congress’s lack of fiscal discipline is responsible for degrading our currency,” she said, explaining her interest in decentralized digital assets. “Debt addiction is decimating savers’ return on their hard-earned money,” she added. Prior to winning his Senate seat in November, Mr. Lummis was Treasurer for the State of Wyoming and served four terms in the House.

  • Ms. Lummis was opposed to the Electoral College’s vote certification last month, so the crypto-evangelist can face political resistance to her positions, whatever their merits.

Specials

  • A plan to force the sale of TikTok’s US operations to a group led by Oracle and Walmart can be filed indefinitely by the Biden government. (WSJ)

  • Hedge fund activist Jeff Ubben is reportedly trying to raise up to $ 8 billion for a climate-focused investment fund. (Reuters)

  • Rivian, a maker of electric vehicles backed by Amazon and Ford, is considering an initial public offering this year. (Bloomberg)

Politics and politics

  • There is debate about whether the meme stock trading craze was fueled by the Fed’s easy money policies – led by “JPOW”, as Fed Chairman Jay Powell is known on the forums. (NYT)

  • Robinhood has registered its new internal lobbying team, which plans to focus on accounts that could harm its business model, such as a proposal for a tax on equity transactions. (CNBC)

Technology

  • The game studio behind “Cyberpunk 2077” said that hackers had seized the source code for their main games and other sensitive information. (Business Insider)

  • “How Will Bezos Spend His Billions Now?” (NYT Opinion)

The best of the rest

  • Fox Corp. reported an increase in Fox News’ profit and defended its main asset, despite a $ 2.7 billion defamation lawsuit and disputes from far-right rivals. (NYT)

  • Goodbye, Aunt Jemima. Hello, Pearl Milling Company. (NYT)

  • Be sure to turn off the cartoon zoom filters before important meetings, such as a court hearing. (NYT)

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