The $125 billion SPAC explosion of 2020 isn't slowing down

There's been more than $125 billion in special purpose acquisition company, or SPAC, merger activity this year, more than quadrupling the 2019 total. And it's only expected to accelerate in 2021.

Driving the news: Three new SPAC mergers were announced in the past 24 hours, totaling over $3.6 billion, all in the vehicle space. Plus, nine new SPACs priced IPOs, raising a combined $2 billion.

The big picture: Both supply and demand are overflowing — hundreds of unicorns and even more near-unicorns with more than 225 SPACs are actively seeking targets.

• Then throw in a deep-pocketed group of active PIPE investors, albeit a few who've gotten more selective of late, new SPAC formations each day, and a vibrant leveraged loan market.

What we don’t know is if this is sustainable.

• Everyone’s jumping into the pool now, including VC firms in a show of buyout envy reciprocity, but this isn’t anyone’s core business — except, maybe, Michael Klein. If there’s some sort of regulatory crackdown from President-elect Biden’s SEC or a few big blowups scare off new investors from blank-check IPOs, then the SPAC market could shrink as fast as it expanded.
• Bankers say they aren’t worried because there’s so much variety in what SPACs ultimately buy. And there’s some truth to that, but there’s been a very heavy concentration so far in the conceptual EV/AV space.

Between the lines: It's long been said that private markets follow public markets. In 2020, however, the reverse has been true.

• Public equities investors act like venture capitalists, eschewing current fundamentals for five-year TAM projections.
• And, with SPACs, they are buying into blank check structures that mimic buyout funds, albeit with worse LP economics and no portfolio diversity.

The bottom line: It's the new normal — for now.