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Illustration: Aïda Amer/Axios

An avalanche of special purpose acquisition companies — better known as SPACs — raised capital this year to help startups bypass the lengthy and difficult IPO process.

Why it matters: Having more public companies is widely viewed as healthy for the markets and for the American economy, even if the SPAC path elicited skepticism and accusations of froth.

  • Public companies provide greater corporate transparency than do private companies. They also offer more retail investor opportunity, whereas private company investments are often limited to the wealthy.
  • Jay Clayton, the outgoing SEC chair, said in his 2017 confirmation hearings: “I believe that a reduction in the number of public companies, which is a function of fewer companies becoming public, is a problem for our capital markets.”

The big picture: The number of domestic operating companies listed on major U.S. exchanges has declined significantly over the past decade.

  • A major driver was the massive increase in available private-market capital, which manifested itself both as take-private buyouts and as growth equity that enabled startups to stay private longer. Plus a slew of public company mergers.
  • Between 2010 and 2020, the number of IPOs per year with a market capitalization over $50 million peaked at 275 in 2014 and hit a low of 105 in 2016. For context, there were a combined 856 IPOs in 1999 and 2000, during the dotcom boom.

By the numbers: Meanwhile, SPACs cropped up at an unprecedented rate this year, with 95 of them announcing deals to take private companies public.

  • 248 SPACs listed in 2020, raising over $83 billion, per SPAC Research. And there are plenty more in the pipeline.
  • That’s up from 59 SPACs that listed in 2019, raising $13.6 billion.

Between the lines: Much of the SPAC frenzy can be attributed to their super power of being able to take companies public now—taking advantage of favorable stock market conditions.

  • The sea of SPACs accelerated the timeline for companies that were already planning to go public in a year or two, and even convinced some that weren't thinking about it at all.

Yes, but: If the stock market turns bearish, even SPACs might not be able to revive interest in going public.

  • “Do you know where the Dow is gonna be in two years? I don’t,” says Niccolo de Masi, ex-CEO of gaming company Glu Mobile and a co-sponsor for two SPACs. “Valuations are good now, I can get you public now,” he says is the pitch to companies from SPACs.

Go deeper

Dan Primack, author of Pro Rata
Jan 29, 2021 - Economy & Business

Varsity Tutors to be valued at $1.7 billion in SPAC deal

Illustration: Rebecca Zisser / Axios

Nerdy, the parent company of online learning platform Varsity Tutors, announced on Friday that it will be acquired by a SPAC called TPG Pace Tech Opportunities at a valuation of $1.7 billion. Axios had previously reported on the deal talks.

Why it matters: This is the first tech SPAC deal affiliated with private equity giant TPG, and comes as more and more legacy investment firms are hopping on the blank check bandwagon.

Jan 29, 2021 - Economy & Business

Transportation's next big thing: flying taxis

Photo: Joby Aviation

The next big thing in transportation could be electric flying taxis — think of a drone crossed with a helicopter — that would ferry people and goods high above congested roadways.

Why it matters: Air taxis are billed as a cheaper, faster, cleaner mode of transportation, and an important link between remote areas and population centers. But there are still technical and regulatory challenges to overcome — not to mention public skepticism.

Exclusive: GOP Leader McCarthy asks to meet with Biden about the border

House Minority Leader Kevin McCarthy (R-CA) at CPAC. Photo: Joe Raedle/Getty Images

House Minority Leader Kevin McCarthy (R-Calif.) has requested a meeting with President Biden to discuss the rising numbers of unaccompanied migrant children at the U.S.-Mexico border, in a letter sent on Friday.

Why it matters: Biden is facing criticism from the right and the left as agency actions and media reports reveal spiking numbers of migrant children overwhelming parts of the U.S. immigration system. Recent data shows an average of 321 kids being referred to migrant shelters each day, as Axios reported.

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