The year 2020 has witnessed several trend reversals due to the pandemic. Along with the change in the field of work culture and lifestyle, a notable shift is palpable in the investment world. For example, a major change noted in the IPO and M&A field is the rise of Black Check or Special Purchase Acquisition Company (SPAC).
What Are SPACs or Blank Check Companies?
Per the U.S. Securities and Exchange Commission, a blank check or Special Purchase Acquisition Company (SPAC) is a “development stage company that has no specific business plan or purpose or has indicated its business plan is to engage in a merger or acquisition with an unidentified company or companies, other entity, or person. These companies typically involve speculative investments and often fall within the SEC’s definition of penny stocks or are considered microcap stocks.”
2020: A Breakout Year for SPAC IPOs
In 2020, SPACs make up most of the growth in the U.S. IPO market compared with the year-ago level.So far this year, SPACs have raised $79.87 billion in gross proceeds from 237 counts, surpassing the record $13.6 billion raised in 2019 (raised from 59 IPOs). The average IPO size was $337 million.
The 462% year-over-year jump in proceeds raised by SPACs this year outperformed the traditional IPOs, which have been raised $67 billion year-to-date, as quoted on Business Insider. In 2007, the last peak of SPAC IPO volumes, SPACs made up about 14% of the IPO market versus about 50% of the market share in 2020. This validates the SPACs’ booming prospects.
Defiance ETFs noted that the COVID-19 situation has made the Blank Check route more appealing for going public as virtual road shows are less effective. The route is also less complicated and pricey. The craze for SPAC IPO increased over summer, with more than one new SPAC IPO per day since July, Goldman highlighted, as quoted on Business Insider.
Big shot investors like Bill Ackman and Michael Klein have raised billions through their SPACs this year. About 45% of U.S. corporate executives are interested in pursuing SPACs, alliances and joint ventures, while only 35% still view traditional M&A as worth considering, according to Deloitte, as quoted in an article.
What Awaits in 2021?
Going forward, the outlook for SPAC is rosy. Charlie Ergen, the chief executive at Dish Network, seeks to create a new company that will raise $1 billion through an IPO to fund acquisitions in the technology, media and telecom sectors. The blank check company called CONX looks to close its first deal within 24 months. Space company Momentus intends to go public through a Stable Road’s SPAC with close to $1 billion valuation.
If the economy continues to improve, SPACs in 2021 could be as solid as they were in 2020. Just the volume of SPACs currently seeking acquisitions (210, according to BTIG, all with time limits of 18 to 24 months maximum) points to a winning trend, as quoted on CNBC.
Against this backdrop, below we highlight the top SPAC IPOs of 2020. Here are the gems:
The solid-state battery developer for electric vehicle use QuantumScape recently completed its announced IPO. The company has agreed to a merge with the SPAC company Kensington Capital Acquisition. Its shares jumped about 50% on the very first day of trading on Nov 27. Shares have gained 388% past month.
The digital sports entertainment and gaming company DraftKings merged with SPAC Diamond Eagle Acquisition Corp. and SBTech and then hit the market on Apr 24. It finished the trading day with a gain of about 11% to close at $19.35. The stock has gained about 197% since Apr 24.
Paya Holdings Inc. PAYA
FinTech Acquisition Corp. III acquired Paya turning it to Paya Holdings Inc., which is an integrated payments provider. The fintech company made its market debut on Oct 19.Shares of the company have risen as much as 10% since its debut though it fell somewhat to close the day. The stock has added 18.3% since hitting the market.
On Oct 29, 2020, the EV maker Fisker announced that it completed the reverse merger with Spartan Energy Acquisition Corp. As of Oct 30, 2020, Fisker is publicly listed and traded on the New York Stock. Its shares surged 13% on debut. Since hitting the market, Fisker shares have gained about 47%.
Zacks Top 10 Stocks for 2021
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