This news service recently spoke to Citi Private Bank about the business that is being done in and around special purpose acquisition companies, an area that has been red-hot for the past 12 months, with deals continuing to come out.
The busy market for “blank check” companies – aka special purpose acquisition companies (or SPACs) has been one of the many eye-catching investment stories of the past 12 months. And stories of prominent investors – and even political activists – getting involved continue to run. Ultra-high net worth investors, company owners and those involved with sponsoring these deals can make a profit. That’s where big private banks enter the fray.
SPACs aren’t new, and a firm which has advised clients on them for some time is Citi. While no market goes up forever in a straight line, the bank reckons there remains considerable room for growth.
“The first weeks of January this year have seen the same volume that we saw in all of 2019. It is unprecedented. At present, current conditions are supporting this activity,” Alessandro Amicucci, EMEA head, Citi Private Capital Group, Citi Private Bank, told this publication.
Asked if there is a bubble in SPACs, he replied. “There is significant volume and real demand for SPAC issuance. The market will continue to evolve, but as an alternative route for growing private companies to access public capital markets it’s here to stay,” he said.
A period of ultra-low interest rates, a still-robust equity market, and expected valuation opportunities caused by COVID-19 disruptions have combined to help drive IPOs sharply higher. As this publication has heard in calls with private banks, the area is drawing in money from family offices, private banks and other wealth managers. The trend has also prompted some warnings.
These exchange-listed shell companies are expanding in number and value. Listings rose to 230 last year, with a total issue volume of $75.8 billion (source: EY). Those numbers are up from 60 listings in 2019, netting a total of $13.7 billion in proceeds. This isn’t only a US phenomenon – more deals are going on in Europe.
The winning formula for SPACs is that buyers get a 20 per cent stake in the financing vehicle at a low cost, which turns into a big stake in the target company after a merger. Sellers can go public without the hassles and restrictions of a traditional IPO. It remains to be seen whether the SPAC structure will work in the US Registered Investor space, given that the M&A market there is already strong.
SPACs have raised more than $38 billion year to date, with an average of $296 million for 128 SPAC IPOs, according to SPACInsider. That’s nearly half the money raised by SPACs in 2020 (source: CNBC, February 10).
As reported last week, veteran investor Bill Foley, owner of Vegas Golden Knights, is intending to issue public filings soon. Colin Kaepernick, the former San Francisco 49ers quarterback turned activist, is getting into the act. The management of German start-up incubator Rocket Internet SE has created a SPAC to seek a deal outside the US, according to Bloomberg.
With so much activity, a bank that can handle the different elements of capital raising and the investment opportunities around them, is in a good position, Citi Private Bank’s Amicucci said.
“[Citi Private Capital Group] provides sophisticated ultra-high net worth clients, representing a pool of private capital, access to our markets, investment banking and capital markets platforms and institutional level services befitting their behavior and needs.” he said. The group, for example, has “an investment lab division for family offices” which provides portfolio analytics and customized investment strategies suited to this sophisticated client segment.
A range of factors are supporting SPACs: high-quality sponsors, investor breadth, appetite to access growth opportunities in the private market, seller awareness, a very low interest rates environment and a generally supportive market, Amiccuci said.
“There are three actors in the SPAC space, and we have seen Citi Private Bank clients active in all of them: as sponsors, as investors, and as a target of a merger with a SPAC,” he said. “Sophisticated family offices have been very active in the space.”
Citi PB has an edge in this space because it can draw on a global network, an investment bank, capital markets division and private bank, all under the same roof, he said. “We are in a unique position.”
Citi Private Capital Group was set up to facilitate access and deliver Citi’s capabilities to its largest and most sophisticated private clients. It works with the teams it already has in the private bank and Citi’s other institutional client group businesses, and is made up of around 15 people, supported by a wider group of specialists. The group was launched 18 months ago.
One consideration to bare in mind is whether a rule change will affect the SPAC drive, such as a scheduled adjustment to the New York Stock Exchange’s direct listing rules. The new rule, approved by the Securities and Exchange Commission in late December, will allow companies to raise fresh capital through direct listings as opposed to just selling existing shares. Under the change, companies can raise cash from retail investors as well as by selling existing shares of the company. Commentators have said this might reduce demand for a SPAC or traditional IPOs.