Sign up for our daily briefing
Make your busy days simpler with Axios AM/PM. Catch up on what's new and why it matters in just 5 minutes.
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Denver news in your inbox
Catch up on the most important stories affecting your hometown with Axios Denver
Des Moines news in your inbox
Catch up on the most important stories affecting your hometown with Axios Des Moines
Minneapolis-St. Paul news in your inbox
Catch up on the most important stories affecting your hometown with Axios Twin Cities
Tampa Bay news in your inbox
Catch up on the most important stories affecting your hometown with Axios Tampa Bay
Charlotte news in your inbox
Catch up on the most important stories affecting your hometown with Axios Charlotte
Illustration: Annelise Capossela/Axios
The prime example of something highly improbable that became conventional wisdom: The idea that both interest rates and inflation will remain near zero for well over a decade.
Why it matters: As Axios' Dan Primack writes, private equity firms (the polite rebranding of "leveraged buyouts") have historically bought companies and loaded them up with debt.
- Now, they're starting SPACs, filled with fresh equity capital, with the intent of taking companies public. "The acquisition part is the same," says Dan, "but the transaction financing is inverted."
The big picture: Normally, debt is cheaper than equity, because it is tax-advantaged. In 2005, for instance, the effective tax rate on equity financing was 36%, while the effective tax rate on debt financing was negative 6.4%.
- What's changed is that interest rates have become so low that tax-deductible debt service expenses aren't big enough to generate much of a tax savings. Simultaneously, stock prices are so high that raising equity capital has never been cheaper.
The bottom line: SPACs are less work for private equity companies: Rather than own and operate a company, they will often just take a board seat. But they will still see enormous upside if the deal works out.
- SPACs also come with less accountability. There are no deep-pocketed limited partners asking awkward questions, just public shareholders who can come and go as they please.