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SPACs Sparkled In 2020, But What Lies Ahead For Them?

One of 2020’s highest high-flyers has been the special purpose acquisition corporation, or SPAC.

It might be hard in the midst of roaring markets and headlines trumpeting Dow 30,000 to remember that one of 2020’s highest high-flyers has been the special purpose acquisition corporation, or SPAC. And SPAC initial public offerings (IPOs) keep on coming, bringing companies to market in what seems like a continuous spate of new listings.

In only the latest salvo, online payments firm Paysafe announced plans on Sunday (Dec. 6) to go public via a SPAC named Foley Transimene Acquisition Corp II. Paysafe plans to go public on the New York Stock Exchange with a $9 billion listing.

The company, which focuses on payment services that enable other firms to take credit cards, debit and cash transactions online, had previously been public, but Blackstone Group took it private in 2017.

The $9 billion deal to return to public markets is among the larger SPAC transactions of 2020. However, it trails two other SPAC deals: the $16 billion United Wholesale merger with Gores Holdings IV, and the MultiPlan merger with Churchill Capital for $11 billion.

And as reported by CNBC Monday (Dec. 7), in further evidence of the interest online financing/payments/financial services firms are garnering, online lending startup Social Finance (SoFi) has reportedly “held discussions” with other SPACs for an IPO.

In other words, it’s a new week, and we already have a new SPAC announcement centered on a payments firm — something we’ve often seen happen through the fall.

As PYMNTS reported in October, order-to-cash solutions provider Billtrust and SPAC South Mountain Merger Corp. said they would merge in a deal that would bring Billtrust public next year. And that same month, payments processor Paya made its own SPAC-driven debut through a merger with another SPAC, FinTech Acquisition Corp. III.

The ABCs of SPACs

In terms of the mechanics, SPACs exist as shell companies that raise funds from investors and then go looking to acquire and take public a company that’s currently private. Because investors buy into SPACs before any such deal has taken place, SPACs are often known as “blank-check companies.” Investors give them a “blank check” of money to do an acquisition after the fact.

The enthusiasm for SPACs has been significant in 2020. SPAC Research has estimated that the asset class has raised more than $72 billion in 2020 alone, and the year isn’t yet done. That’s well beyond the $13.6 billion raised through 59 deals in 2019.

The traditional IPO market has boomed, too. CNBC estimated that nearly 200 firms have come to market overall.

But we contend that SPACs have proven to be especially popular, as they allow investors — and the target firms, of course — to leapfrog the traditional listing process and some of the regulatory hurdles the come with that.

Enter Bill Ackman

The SPAC industry has been star-studded of late, with some marquee names such as billionaire investor Bill Ackman taking part.

The retail investor, then, might be interested in casting his or her lot in with those heavyweights. Parking funds with the SPAC does in a sense represent full faith in that manager or management team’s abilities. But there’s also the potential for investors to vote with their feet, as they can sell their shares before any deal is done by the SPAC.

Are Valuations Too High for SPAC Deals?

We’re in rarefied territory now, with markets this lofty — and it should be noted that these new SPAC issues are coming to list on those lofty markets.

With valuations getting stretched, it’s presumably harder for SPACs to find new deals to make. That, in turn, might make investors wary or perhaps skittish if deals do not come soon after a SPAC goes public. After all, the higher one goes, the further one can fall.

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