Illustration: Eniola Odetunde/Axios

Hedge fund manager Bill Ackman on Wednesday raised $4 billion via an IPO for a special purpose acquisition company (SPAC), the largest such offering in history.

Why it matters: SPACs, publicly traded shell companies designed to acquire other companies, are flooding Wall Street — creating new paths to the public markets for everything from DraftKings to Virgin Galactic to health insurance software giant MultiPlan.

Nearly 50 SPACs have already gone public in 2020, raising more than $20 billion. For context, SPACs raised $13.3 billion in all of 2019 and less than $4 billion in 2015.

  • A SPAC led by former Citigroup executive Michael Klein last month completed the largest-ever SPAC deal, agreeing to acquire MultiPlan at an initial enterprise value of $11 billion.
  • Just one week later, Churchill Capital Corp. IV filed for an IPO.

“They are now considered as viable as any other path of going public, and they’re all performing well,” Niccolo de Masi, ex-CEO of gaming company Glu Mobile and a co-sponsor for two SPACs, told Axios. “SPACs are as institutionalized."

Flashback: Back in the 1980s, so-called blank check companies earned a reputation for fraud.

  • The Penny Stock Reform Act of 1990 and SEC Rule 419 introduced reforms, and SPACs emerged in 1992 as a more modern version with stronger investor protections and regulatory approval.

Some in Silicon Valley see SPACs as preferable to a traditional IPO.

  • Compared to the standard IPO process, it’s much faster with fewer disclosure requirements.
  • They appeal to Silicon Valley investors' fundamental tendencies: Putting up a small amount of capital, owning an outsized piece of the company and placing multiple bets, preferably guided by an underlying thesis or method.
  • “The SPAC structure helped us split the difference of doing a private round and going public,” George Arison, co-founder of online car marketplace Shift, told Axios.

Yes, but: SPACs aren’t without their risks. For example, shareholders can block a deal.

The bottom line: Prepare for even more SPACs.

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Dan Primack, author of Pro Rata
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