AGC’s Year End SPAC Report – Tech SPACs Power On Undaunted by the Broken Toys Left Behind
SPAC formation rages on with 330 dry powder Tech SPACs and over $530B of buying power desperately in search of worthy private companies. Recent SPAC IPOs are on a tear with 105 raising money so far in Q4 and another 151 on the filing runway ready for takeoff. SPAC IPOs are tracking to be over $100B in proceeds in 2021 versus $160B for tech IPOs, and tech SPAC announced acquisitions are over $500B in 2021 versus $800B for all other tech M&A. SPACs do matter in our tech world and will continue to be a force in some altered state. Interest rates are being held close to zero while stimulus spending hits new records, driving public multiples to new highs, increasing the gap between the private and public values and stoking the demand for private companies’ IPOs and SPACs. Not surprisingly, this intense competition and tsunami of capital has forced SPAC sponsors to pay up, lower the bar on quality, do more pre-revenue deals and, as predicted, start doing smaller revenue deals. The SPAC world just had its first Cannabis tech deal at $300M EV and 20x its $15M in revenue. Do you think the Fed Reserve and current administration might be stimulating the economy a little too much? ☺
The biggest fireworks by far was provided by Trump Media’s announcement to sell to a SPAC – Digital World Acquisition Corp. – at a $993M EV with $1.25B of cash on its balance sheet, funded by a $1B PIPE and $293M in SPAC cash. The deal is expected to close in Q1 ’22. Not since the pre-bubble days of January 2021 has there been a big one-day pop following a SPAC deal announcement (SOFI, up 79%), and it pales in comparison to the 846% gain of Digital World/Trump Media. Within 48 hours of the announcement, DWAC, which was issued at $10, closed up nine-fold at $94, trading as high as $175 at one point. DWAC’s shares turned over 18 times in a single day (500M daily volume). The stock has since eased to $50 and at 193M in total outstanding proforma shares, this implies a market capitalization of $9.6B for the new company. While very much of an anomaly, it’s interesting to see the animal spirits at work again in the SPAC space despite the devastation all around.