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Matt Levine

Bill Ackman Wants a Mature Unicorn

Also disgorgement, fonts and Pill Gates.

I never really understood SPACs until WeWork. A SPAC is a special purpose acquisition company (or “blank-check company”), a corporate shell, sponsored by a well-known investor, that goes public and raises money from investors with a plan to find a private company to merge with. The merger effectively takes the target company public, without an initial public offering; the SPAC effectively transforms into the target company. Investors who buy the SPAC in its initial public offering don’t know what they’re buying; it will eventually transform into a real company (the target), but they don’t know what company it will transform into. They are effectively buying the target company’s IPO in advance, without knowing what the target company is, or the price. (If they don’t like the target, though, they can get their money back before the merger closes.) 

In general I did not get the appeal. If you’re an investor, you will presumably pay more for a company that you like than for a company to be named later. If you are the target company looking to go public, the SPAC offers some obvious disadvantages. The fees are, effectively,  much higher than in a regular IPO: The SPAC pays its own IPO fees, you pay advisers to negotiate the merger, and the sponsor of the SPAC generally gets a big cut of the SPAC as a reward for looking for the target. And because there is no market check on the IPO price—the target and the SPAC just negotiate the target’s valuation between themselves—you do not avoid the “IPO pop” that private companies are always worrying about. Nikola Corp. famously went public this month via a SPAC merger that raised about $10 per share; its stock closed that day at $33.97.  It left a lot of money on the table, as venture capitalists are always saying about IPOs. If you are looking for a calmer, more rationally priced, lower-key alternative to the IPO, a direct listing might be a good idea, but a SPAC merger is sort of the opposite.