Juicy Multiples for Recent Early Revenue SPAC Mergers

Dear friends and colleagues:

The enormous valuations on the 22 early revenue stage SPAC acquisitions are among the most stunning aspects of the SPAC market today. While the Bessemer index of the top public SaaS companies is valued at roughly 17.5x 2020 revenues, the 22 tech SPACs with revenues of $10-110M are valued nearly 70% higher at 29x. This class of SPACs is growing at a median of 67%, with a 37% EBITDA loss and shares that have traded up 12% from their IPO. Maybe this collection of recently public tech companies deserves its high valuation, but it’s hard to believe they deserve a valuation equivalent to the best SaaS companies, much less a massive premium.

The Q1 tech M&A and IPO stats are ginormous and are being driven by the western governments holding their borrowing rates at zero or negative, massive monetary and fiscal stimulus, warpspeed vaccinations, and quickly opening economies. We now have the unique phenomenon of Joe Retail Investor getting a piece of the $1.9 billion stimulus and dumping that into the stock market e.g. Gamestop and SPACs. We have institutional investors chasing PE returns on super high valuations, followed by retail investors driving those prices even higher. Last year’s record $600 billion in tech M&A value is being dwarfed by a Q1 run rate, tracking at $1.3 trillion. Last year’s tech IPO market raised $84 billion, a 12 year record, only to be crushed by a Q1 run rate of $286 billion. Tech SPACs represent 53% of the tech M&A market and 73% of the tech IPO market this year to date.

Last week’s SPAC numbers were impressive with 22 filings, 11 completed IPOs, and 5 announced acquisitions. That said, those numbers are down from their previous highs of 38, 28 and 11. The SPAC market is just catching its breath and calibrating how to move forward. The 110 announced and closed tech SPACs in ’20 & ’21 are up a median of 19% from their IPO price. There are now roughly 350 SPACs seeking tech targets with $750 billion in buying power, and that’s on top of the 66 tech SPACs that have already announced deals this year for $167 billion of value. Of the 66 announced deals in ’21, 25 are pre-revenue in nature such as EV companies, 22 are in an early revenue stage, and 19 are tech companies with $110M+ in revenues. Time, performance, and the market will vet these and other new tech SPACs still to come, with some of them ending up on the island of misfit toys and others up among the stars with Draft Kings.

Please feel free to reach out with any questions or comments.