Another sign that the zoo has gone crazy. “If you don’t have your own SPAC, you are nobody.”
By Wolf Richter for WOLF STREET.
The SPAC business is breaking records. A special purpose acquisition company (SPAC) is a “blank check company” with no business activity that raises funds from investors through an IPO and will then attempt to use those funds to buy a start-up company. For the startup, being acquired by a SPAC is an alternative to an IPO. There are fewer disclosures to make, compared to a standard IPO. For Wall Street, there are huge fees to be charged. And initiates, including those who start SPACs, earn a lot of money. Therefore, all building blocks are in place.
In 2020, a historic record of $ 83 billion was raised by SPACs, six times as much as in 2019 ($ 13.6 billion), according to data from the SPAC Insider. That $ 83 billion was more than all the funds that SPACs raised in all previous years combined, according to Dealogic, and exploded by the $ 78 billion raised by standard IPOs in 2020, such as the Airbnb IPO. Everyone and their dogs were starting SPACs, from former Mayor Paul Ryan to ex-NBA star Shaquille O’Neal, chasing the hottest stories of the hour.
And in 2021, the SPAC craze accelerated further. “If you don’t 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 US $ 19 billion, more than in the whole of 2019:
A special mix of market exuberance, blind confidence that this exuberance will last forever, and a total disregard for valuations are necessary to create this type of situation.
To see how far this SPAC craze has exploded this year, we can look at the dollars raised per week, on average. It turns out that in 2021, $ 6.4 billion was collected per week, compared to $ 1.6 billion per week in 2020. This is where we are so far:
There are currently 287 SPACs, with about $ 90 billion in cash, who are now trying to chase startups in the hottest sectors of the moment, of everything – EVs to telehealth.
IPO shares soar.
Shares after going public have soared since the March lows. The Renaissance IPO ETF [IPO], which tracks the Renaissance IPO index, which includes the largest 80% of IPOs in the past two years, has skyrocketed nearly 240% since March 18, blowing the S&P 500 index completely, which has risen 72% since the low of March . This peak in the IPO index occurs after having spent the previous five years on roughly the same trajectory as the S&P 500 Index (data via YCharts):
The rates for SPACs and IPOs are a gold mine for Wall Street banks.
Banks have already reported their fourth quarter results, including the fees they earned with SPACs and IPOs. In 2020, the top six in share subscription fees – Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America, Citigroup and Jefferies – earned $ 14.1 billion in SPAC and IPO fees, according to the Wall Street Journal , an increase of 89% compared to 2019:
So, everyone is getting rich with this craze for SPACs and IPOs and is having a lot of fun. And after everyone got rich with the craze, extracted fees, downloaded shares and had fun, there’s another thing: in previous crazes of this type, the result was very cruel for investors who made everything possible by buying these shares with that mixture of exuberance , blind confidence that this exuberance will last forever and a total disregard for evaluations. Ah yes, this time is different, everyone is saying it again – another sign that the zoo has gone crazy.
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