Jul 13, 2020 - Health

SPACs are the new IPOs

Illustration of a pile of money with a man trying to shovel his way out and failing. 
Illustration: Aïda Amer/Axios

Churchill Capital Corp. III has agreed to acquire health-cost management services provider MultiPlan at an initial enterprise value of $11 billion, as such deals continue to proliferate as alternatives to IPOs.

Why it matters: This is the largest special purpose acquisition company (SPAC) merger, and it also includes the largest private investment in public equity (PIPE) associated with a SPAC. Existing MultiPlan owners like Hellman & Friedman and General Atlantic will roll over more than 75% of their collective stake and own over 60% of the public company.

  • A source tells Axios that negotiations began before the pandemic.

Context: A SPAC is a shell company that raises money from the public markets for the purpose of acquiring a private company.

This too: Spartan Energy Acquisition Corp., a SPAC backed by Apollo Global Management, agreed to buy electric car maker Fisker at a $2.9 billion enterprise value.

Oh, and this: Two more SPACs on Friday filed to go public.

Why now? SPACs have been around for years, but what we're seeing now seems largely driven by public equity froth.

  • Stock markets are salivating for almost any new issue, whether or not it includes an operating company. That's the perfect petri dish for SPACs, and they're raising billions.
  • IPOs are also going gangbusters but often take longer to complete with far more disclosure than do reverse mergers via SPAC. Plus there's rampant underpricing. So why not strike while the iron is hot and (relatively) easy?

Going public via SPAC does have some downsides. For example, you still need shareholder approval, could get hammered by redemptions, and need to give a large slice of economics to the SPAC sponsor.

The bottom line: SPACs, not direct listings, are the 2020 challenge to IPOs and IPO bankers.

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