Chamath Palihapitiya returns to the SPAC game
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The SPAC King is back, crown dented but confidence unbowed.
Driving the news: Venture capitalist and podcaster Chamath Palihapitiya has filed to raise $250 million for a new blank-check company called American Exceptionalism Acquisition A.
- It aims to acquire a company in one of several industries, including energy production or decentralized finance, although SPACs often settle on targets way outside their original purviews.
Why it matters: Palihapitiya for several years was the SPAC market's most active and visible sponsor, raising over $6.3 billion in IPOs for 10 of them and buying six companies.
- He also became a lightening rod for SPAC critics, as all but one of those companies now trade below $4 per share. The exception is SoFi, which closed yesterday at $22.75 per share.
- Palihapitiya also was involved in PIPEs for several other SPAC mergers — including for Desktop Metal, which later was acquired at a steep discount and recently filed for Chapter 11 bankruptcy protection.
Catch up quick: Palihapitiya in 2022 seemed to sour on SPACs, winding down a pair of tech-focused ones after failing to find adequate merger targets. In short, he argued that such companies had failed to adequately reset valuation expectations to a post-ZIRP world.
- He kept a pair of biotech-focused SPACs open, but those never consummated deals either and eventually shut down.
Fast forward: Palihapitiya seems to believe that valuations have finally begun to take their Adderall, and there's some new data backing him up (both in terms of private round valuations and IPO prices vs. last private marks).
- In the new SPAC prospectus, he also cites a belief that "the biggest gains in the future will come from companies that are involved in fixing the fundamental risks that come from our interconnected global order while reinforcing American exceptionalism."
- The former Democrat has taken a Trumpy turn, and perhaps wants to return to an asset class where Trump and his sons have increasingly dabbled. Or perhaps he's banking on talk that the SEC will relax Biden-era SPAC oversight.
Yes, but: Palihapitiya gives a nod to his past performance problems, bolding a section about improved investor alignment.
- The new SPAC includes no warrants and a larger-than-normal sponsor promote, although his shares only vest if the post-merger company trades at a 50% premium to the IPO price (i.e., $15 or more).
- He also notes that this sort of offering is more appropriate for institutions than retail investors, and that any participants should go in with the understanding that there's "no crying in the casino."
The bottom line: Palihapitiya will have no trouble selling this, and its very existence could help set off another SPAC craze.
