Young entrepreneurs and new investors may represent an emerging influence on the heated environment in the special purpose acquisition sector, according to Avi Katz, CEO of SPAC specialist GigCapital Inc.
Katz, whose Silicon Valley company GigCapital has become a serial sponsor of tech SPACs, said he has also seen an increase over the past four months of inbound calls from companies willing to consider a business combination with a SPAC.
Katz, who has two SPACs in market — GigCapital2 Inc. (GIX) and GigCapital3 Inc. (GIK.U) — spoke during The Deal’s June 30 webcast, SPACs Are Back, an event hosted in partnership with Vinson & Elkins LLP.
The webcast, emceed by The Deal senior reporter Steve Gelsi, also featured Vinson & Elkins’s E. Ramey Layne, Novus Capital Corp. (NOVS) CEO Larry Paulson and Ed Kovary, managing director for EarlyBirdCapital Inc., and touched on the popularity of SPACs in the current volatile market, the way the vehicle has evolved over the decades and renewed interest from mainstream investors.
In the past SPACs were considered alternative investment vehicles for companies that would struggle in a traditional IPO path. But according to PrivateRaise, The Deal’s proprietary data service covering U.S. SPAC activity, 31 SPACs have priced IPOs this year, raising $9.2 billion.
There are another 14 SPACs registered with more than $5.9 billion in possible capitalization waiting to IPO.
SPAC deals have accounted for more than 60% of the IPO volume in 2020.
Meanwhile, high-profile companies, such as daily fantasy sports and betting platform DraftKings Inc. (DKNG) and space exploration company Virgin Galactic Holdings Inc. (SPCE), have used the vehicle to much fanfare, also attracting interest in the sector.
Sponsors and investors continue to be attracted to the flexible deal structures, solid returns and the speed and certainty of IPOs that SPACs offer compared with other opportunities, the panelists said.
Kovary, of SPAC-focused investment bank EarlyBirdCapital, said that despite Covid-19’s early impact on the IPO market, now is a great time to be a SPAC sponsor and that millennials are investing in the SPAC market, pushing up share values.
The panel pointed to the Nikola Corp. (NKLA)-VectoIQ Acquisition Corp. deal that closed earlier in June. The $3.3 billion transaction for Nikola, a maker of alternative fueled trucks, is an example of a company that captured the attention of younger investors interested in the environment.
Paulson, a former vice president at Qualcomm Inc. (QCOM), said he feels that SPAC sponsors need to be able to pivot their investment thesis. He said that trends can change quickly, citing the trend of people moving to urban locations changing quickly to folks flocking to the suburbs as the kind of quick change that sponsors need to see coming. He also said that while larger players are getting into SPAC sponsorship and there are more SPACs in general, those increases don’t amplify risk but rather influence challenges for SPAC sponsors.
Paulson’s Novus Capital went public in May, raising $100 million for a potential business combination with a smart technology company.
While Bill Ackman made headlines registering his Pershing Square Tontine Holdings Ltd. SPAC with a possible $6.4 billion capitalization, Layne thinks the sweet spot for the majority of SPAC IPOs will continue to be $200 million to $300 million, with deal values landing between $500 million and $1.5 billion.