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Wednesday, March 3, 2021
Goldman Sachs puts the SPAC boom in context.
At the end of last year, we wrote about David Kostin’s stock strategy team at Goldman Sachs, declaring 2020 to be the year of SPAC.
In the few months since this report, the trend has only accelerated.
Kostin’s team published on Monday its latest update on the space and the torrid pace with which these vehicles are reaching the market.
And torrid can be an understatement.
As of February 26, some 175 SPAC sponsors have debuted on the public market raising a total of $ 56 billion. Throughout 2020 – a record year for SPAC IPOs – about 223 SPAC sponsors have hit the market.
SPAC Insider data shows that as of Tuesday, about 204 SPAC IPOs have hit the market; on Tuesday alone, no fewer than 12 SPACs were announced, according to Street Insider data. At this rate, the record 2020 year for SPACs can be eclipsed over the weekend. SPAC Insider data shows that from 2009 to 1919, there were 226 SPAC IPOs in total.
As a quick reminder, SPAC is an acronym for Special Purpose Acquisition Company, often referred to as a “blank check” company. These are publicly listed entities with shares that do not represent rights in the business of an underlying company, but reflect an equity interest in a capital pool that will later be deployed to acquire an existing business.
In January, we saw SPACs as yet another micro-bubble, the type that has appeared on the market several times in recent years. Goldman’s data, however, shows that the capital behind these vehicles represents a much more potent market dynamics than speculative flows for cryptographic projects of the 2017 era or stocks of marijuana.
“SPACs can generate more than $ 700 billion in acquisition activities over the next two years,” writes Goldman. “We estimate that $ 103 billion in SPAC capital is actively seeking an acquisition target. The aggregate proportion of the target company’s value in the merger announcement for the associated SPAC capital was 7x this year, a jump of 6x in 2020 and only 3x during the years 2010. If the YTD index remained, SPACs would acquire companies worth more than $ 700 billion of [enterprise value]. “
Given the interest of customers and the wider markets, we expect Kostin and the team to remain on this topic. And the graph below gives us the simplest way to think about what an implicit value of the SPAC universe could be – just take the total amount of SPAC capital looking for an acquisition and multiply it by 7.
And while SPAC business multiples are rising, Goldman also found that the value of companies that went public through that channel is increasing, as is the speed with which sponsors are applying their capital.
So far this year, the average value of a company set to go public via SPAC is $ 2.9 billion, up from $ 1.7 billion last year and ~ $ 800 million in the past decade, according to Goldman data. Sponsors are also meeting targets 175 days after their IPO, less than half the time that sponsors spent researching in 2020 and below an average of 487 days in the 2010s.
In Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him on @MylesUdland
What to know today
Economy
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07:00 ET: MBA mortgage apps, week ended February 26 (-11.4% during the previous week)
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8:15 am ET: ADP job change, February (200,000 expected, 174,000 in January)
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9:45 am ET: Markit US Composite PMI, End of February (58.8 in the previous impression)
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9:45 am ET: Markit US Services PMI, End of February (58.9 expected, 58.9 in previous impression)
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10:00 ET: ISM Service Index, February (58.7 expected, 58.7 in January)
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14:00 ET: Federal Reserve launches beige book
Earnings
Pre-market
Post-market
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4 pm ET: Splunk (SPLK) expected to report adjusted earnings of 3 cents per share on revenue of $ 677.81 million
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16:00 ET: Okta (OKTA) 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) expected to report an adjusted loss of 17 cents per share on revenue of $ 178.55 million
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4:05 pm ET: Vroom Inc (VRM) expected to report an adjusted loss of 37 cents per share on revenue of $ 401.85 million
Headlines
Biden: the US will be able to vaccinate all adults by the end of May [AP]
UK stocks soar with Chancellor Rishi Sunak set to disclose tax and budget spending [Yahoo Finance UK]
Rocket goes up 71% because shorts are ‘breaking and burning’ [Yahoo Finance]
Josh Kushner’s Oscar Health expands IPO to raise $ 1.4 billion [Bloomberg]
Yahoo Finance Highlights
Biden’s SEC pick: some crypto markets “fraught with fraud and scams”
Elizabeth Warren’s wealth tax will not work. This goes
See how brands are responding to hate crimes against Asian Americans
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