How Much Cash is Being Deployed in SPAC Deals?

By: SPAC Research

Email: bk@spacresearch.com

Published: September 14, 2020

We know that it has been a record-breaking year for SPACs, which have raised over $33bn in the US this year across 81 deals. But raising capital for a SPAC is not the same as for a traditional IPO that’s going to use the money for growth or operations. This week we are examining the size of the SPAC market on the back end — that is, how much capital is being invested in SPAC deals as they deSPAC and their operating targets turn into public companies?

Last month, we looked at the volume of SPAC deals by enterprise value. We have updated that study below. As you can see, almost $31bn of transaction volume has come public via SPAC this year, with another $35.5bn in the pending column.

Of course, that does not tell the whole story. Just as companies may sell 10% or 30% or some other percentage of their shares outstanding in an IPO, operating companies usually only sell a minority stake when they go public via SPAC. So while we’ve seen $30.6bn worth of enterprise value taken public via SPAC deals this year, we wanted to explore how much equity capital is actually being deployed in SPAC deal closings. We added up all the equity financing sources at deal closings over the past few years, including PIPEs, FPAs, backstop financing, and unredeemed trust accounts. In total, across the approximately $95bn in closed SPAC deals since 2017, roughly $24.4bn in equity capital has been committed.

The 2020 numbers don’t include any pending deals, so this year is likely to dwarf previous years. Putting the two previous charts together, you can see below that on average, operating companies have been selling roughly one quarter of their enterprise value when they go public via SPAC transactions. Looking at 2020, the $7.5bn worth of equity capital deployed so far this year represents 24.6% of the year’s total deal volume. The percentage has been declining a bit over time, as multi-billion dollar deals with very high rollover percentages have become more common.

So how does that compare to equity capital raised in regular IPOs? You can see below that SPACs and regular IPOs are on the same order of magnitude as far as the amount of capital raised as a percentage of enterprise value.

Source: SPAC Research & Renaissance Capital

 

But the point here is to look at the aggregate amount of equity sold in SPAC deals vs. the regular IPO market. The blue bars below are the same values as from the top-most chart above — they represent the total amount of equity capital deployed in SPAC deals by year. The red bars are the amount of equity sold in all US IPOs over the same timeframe. The $7.5bn in equity capital deployed in SPAC closings so far this year represents almost 20% of 2020’s total amount raised through regular IPOs.

Source: SPAC Research & Renaissance Capital

 

Twenty percent may not be as high a number as the 30% or 40% that represents the percentage of total US IPO proceeds this year raised by SPACs. But remember, this study isn’t looking at dollars being deposited in a refundable trust account – here we’re looking at the amount of cash actually being directed at operating companies. SPACs’ proportion of go-public financing has grown steadily over the past four years and we should expect that growth to continue. As we saw last week, there’s more than double the amount in SPAC trust accounts than there was one year ago. Private companies appreciate the transaction certainty and accelerated timeline that a SPAC listing can deliver. It is all but certain that the huge volume of pending deals and trust account capital will keep the momentum rolling and drive SPACs’ share of total proceeds even higher as the year goes on. We will update this study periodically as the deals roll in.

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