Corporate Insights Making Waves: the evolution of SPACs

Making Waves: the evolution of SPACs

(4th Quarter 2020)

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Themes
 

The rising tide of SPACS:

  • The surge in SPAC activity this year is unlike anything we have seen before. The dramatic increase in SPAC activity has coincided with the volatility in the equity markets, driven by the Coronavirus pandemic
  • The average growth of SPAC issuances from 2017 to 2019 was about $2 billion per year. The growth from the end of 2019 to today has been $51 billion…and counting.
  • We have identified three key themes of SPACs today: high growth disruptors, lower profile but high quality targets, and mission-oriented companies (i.e. ESG)

Alternatives to a SPAC:

  • SPACs can offer many unique advantages versus more conventional alternatives (i.e. traditional IPO and M&A), such as price certainty, secure upfront capital, greater execution confidence, structural flexibility and managerial expertise

2020 volumes can serve as a guide for the SPAC market in the near term:

  • Record-high levels of public market valuations and dry powder are two key drivers for the 2020 SPAC boom. Coupled with the upfront price discovery, SPACs are a great tool for raising capital in an unpredictable market environment
  • In the second half of 2020 alone – through October – there have been over 130 SPAC IPOs in the US, evidencing strong momentum for future SPAC activity
  • Of the 213 SPACs currently seeking acquisition, over 60% of SPACs have 18-24 months to find a target, paving the way for an active de-SPAC market in the near term

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Making Waves: the evolution of SPACs

Introduction

The remarkable volatility of the equity markets during 2020, driven by uncertainty around the Coronavirus pandemic, seems to have also unleashed an equity product that had otherwise been very much in the background. Despite having been around for decades, with rising issuance over the last several years, SPACs have experienced a dramatic increase in activity this year. In this paper, the 17th in our ongoing series of Credit Suisse Corporate Insights, we explore the evolution of SPACs.

We delve into the key characteristics of SPACs in comparison to initial public offerings (IPOs) and to other, more traditional forms of raising equity capital, and we highlight lessons learned through some recent case studies.