NEW YORK (Reuters Breakingviews) – Sponsors of blank-check companies, who already collect up to 20% of a vehicle’s shares in return for very little investment, may have found a way to put in even less effort. A new special-purpose acquisition company is giving itself the option to spin off some of the cash raised into another SPAC. Along with a newly approved way for companies to raise capital alongside a direct listing, the menu of options for going public is getting longer.
SPACs have been the U.S. equity market story of 2020, with a six-fold surge in issuance from a year earlier to a whopping $82 billion, according to Dealogic. The latest twist comes from the aptly named Spinning Eagle Acquisition, the latest brainchild of former entertainment executives Jeff Sagansky and Harry Sloan. A filing on Wednesday outlined how rather than being constrained to find an acquisition of a certain size, it might carve out proceeds into a mini-me SPAC and spin it off to shareholders.
Sagansky and Sloan’s earlier SPACs have successfully found targets, most notably fantasy-sports firm DraftKings. Sponsors are generally entitled to up to a fifth of the shares if they find a deal, in return for often minimal cash investment and the attachment of their names and expertise. The spinoff idea would be a way to spawn a new SPAC directly rather than go back to the drawing board to create another.
SPAC acquisition targets are often keen to go public relatively quickly and without the full rigmarole of an underwritten IPO process. Other candidates for public markets think the traditional approach distorts valuations, sometimes causing huge first-day trading gains like the 113% pop in Airbnb’s stock price earlier this month. For them, an alternative is a direct listing, in which a company’s existing shares start trading without a pre-agreed price.
Only a few companies chose this route in 2020, most famously data analytics group Palantir Technologies. One disadvantage for businesses that lose money is that selling new shares to bring in fresh cash wasn’t permitted with direct listings. But on Tuesday U.S. regulators finally approved a New York Stock Exchange plan allowing just that.
SPACs will continue to offer near-instant gratification. With the added option to raise capital, though, direct listings could become more appetizing.
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