„This Is Unsustainable“: 2021 SPAC Issuance Will Surpass Entire 2020 Total Before End Of March
The last time we addressed the staggering SPAC bubble sweeping across US capital markets – and when we gave Matt Taibbi the mic to express his SPAC views in his uniquely trademark style – was about ten days ago when citing Goldman data, we reported that we have reached a surreal, permanently high plateau where 5 new SPACs price ever single day so far in 2021, and that YTD, 144 SPACs have gone public raising a total of $44 billion.
Well in the 10 days since, it’s only gotten even more surreal with Goldman’s chief equity strategist David Kostin writing that SPAC issuance has exploded (even more) and a whopping 175 SPACs have raised $56 billion in IPO capital YTD, an average of $1.5 billion per trading day. As Kostin further notes, in February alone, 90 SPACs raised $32 billion in IPO capital the largest issuance month on record.
Remarkably, as even Kostin admits, „the blistering pace of issuance is likely unsustainable“ however – just in case it is – he calculates that if the current pace of issuance persists, 2021 will surpass the 2020 full-year total before the end of March!
Some more fascinating data points:
- 2021 has seen record deal announcements for SPACs.
- 43 SPACs have announced acquisitions YTD totaling $123 billion in enterprise value, compared with the full-year 2020 total of $156 billion across 93 deals.
- 66% of the $123 billion in announced deal EV is concentrated in Info Tech and Consumer Discretionary alone, reflecting a continued shift toward Growth among SPAC sponsors and investors.
Finally, not even Kostin can sustain himself in describing the SPAC boom by the three words that seem most appropriate…
- Bigger: SPACs are seeking to merge with larger targets. On February 22nd, the largest SPAC acquisition ever was announced as Churchill Capital Corp IV stated its intention to purchase a stake in Lucid Motors at a pro forma equity valuation of $24 billion. The average 2021 announced SPAC target has an enterprise value of $2.9 billion compared with an average of $1.7 billion in 2020 and $832 million for the preceding decade. Larger average SPAC IPO capital raises ($400 mn in 2021 vs. $250 mn from 2010-19), smaller acquired stakes, and greater use of external financing (e.g LLCPIPEs) have contributed to the larger deal size.
- Louder: SPACs could generate more than $700 billion in acquisition activity in the next two years. We estimate $103 billion in SPAC capital is actively searching for an acquisition target. The aggregate ratio of target enterprise value at merger announcement to associated SPAC capital has been 7x this year, a jump from 6x in 2020 and just 3x during the 2010s. If the YTD ratio were to hold, SPACs would acquire firms worth more than $700 billion of EV.
- Faster: The SPAC life cycle is accelerating. Between 2010 and 2019, SPACs announced deals an average of 487 calendar days after the IPO. The average time shortened to 366 days for 2020 announcements and just 175 days thus far in 2021. Northern Star Investment Corp II was the quickest SPAC to find and announce a target, doing so less than a month after its IPO.
Finally, Goldman listed 20 active SPACs that trade at premiums of 17% to 47% above their IPO prices.