If any dealmaker felt the pandemic pinch, one would expect it to be Euan Rellie, founder of cross-border M&A boutique investment bank BDA Partners. The sun never sets on BDA’s sprawling network of corporate matchmakers, with offices across Asia’s burgeoning economies, New York, and London. But COVID travel restrictions meant bankers and clients alike had their wings clipped for most of 2020, unable to peruse the tasty corporate assets on offer in places like China, Vietnam, India, and Korea.
For those unfamiliar with the term, SPACs, also known as ‘blank check companies’, seek to pool money from investors with a plan to acquire an existing asset. For example, it could be a company whose existing investors are looking for an exit and would be happy to sell their interest. For companies, it gives them a convenient method of getting onto an exchange – SPACs are already listed on stock markets through an initial public offering (IPO) – and it gives the people backing the SPAC a chance to quickly get exposure to an emerging trend like the stock market bull run experienced by technology companies this year.
While special purpose acquisition companies (SPACs) have existed since the early 1990s, these investment vehicles have gained popularity in recent years. SPAC IPOs have raised over $49 billion thus far in 2020, outstripping all prior records, and many more have filed to go public by the end of the year. While in the past, most SPACs were taken public by boutique investment bankers and raised tens of millions of dollars, today, nearly every "bulge bracket" firm has led a SPACs deal, with proceeds up to hundreds of millions or even billions of dollars.
Amid this year’s white-hot IPO market, the SPAC, or special purpose acquisition company, has incinerated previous records for this once-obscure financing vehicle. Thus far, in 2020, 116 SPACs have been funded through initial public offerings, raising $40 billion. SPACs make up the single largest “industry” group in 2020’s crop of IPOs, accounting for 45% of the number of new issues and 44% of total capital raised. More "blank check" companies debuted on NASDAQ and NYSE in August and September than "real" operating companies. The financing vehicle has attracted a host of luminaries, from investment icons like Bill Ackman of Pershing Square and Peter Thiel, baseball savant Billy Beane of “Moneyball,” and former Speaker of the House Paul Ryan.
As the Dow Jones officially entered bear market territory and the WHO declared COVID-19 to be a pandemic, over 150 companies have lowered or withdrawn their earnings guidance as of March 11, 2020. As an increasing number of countries take dramatic steps to slow the spread of the virus and the disruption to business operations increases, that list is sure to grow.
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Tencent Music’s (NYSE:TME) $1.1 billion IPO on the NYSE last week put a shiny bow on a banner year for Chinese IPOs on U.S. stock markets, with over $8 billion raised year-to-date, twice the IPO haul for Chinese companies in 2017. With 30 Chinese companies having listed on NASDAQ or NYSE it’s the best year since 2014, when Alibaba’s (NYSE:BABA) $25 billion IPO broke all previous records. What’s more, there is a sizable pipeline of China “unicorns” with multi-billion dollar private valuations hoping to score listings in the near future.
Given the deteriorating trade relations between China and the U.S., why are so many of China’s most innovative and valuable private companies still seeking to ring the opening bell in New York? And can this blistering pace of new IPOs be sustained?