Banker: SPAC deals aren’t going anywhere

Jim Bunn, head of global equities and investment banking at Raymond James Financial was on CNBC to discuss the outlook for special purpose acquisition companies (SPACs).

A SPAC, also known as a black-check company, goes public via an IPO to raise money with the sole purpose of acquiring another company and does not have any existing business operations.

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After attracting record fund flows, SPACs have started to get regulatory scrutiny and some leading investors are also raising concerns about these investment vehicles. Ray Dalio, Co-Chief Investment Officer & Co-Chairman of Bridgewater Associates, said the following regarding the recent boom in SPACs:

“SPACs as investment vehicles are prone to bubble mentality.”

But Bunn believes SPACs are here to stay and let’s look at what he said. 

SPACs are here to stay

“I think what’s happening in the SPACs market is predictable anytime you have innovation in the financial markets. You can look back to high-yield bonds in the 1980s or internet IPOs in the 1990s, where you have a cycle you go through,” said Bunn. “SPACs have benefits for companies and for investors, and will ultimately be here to stay.”

He further added that the IPOs peaked at about 100 in March and pulled back to 10 in April. 

Unlike traditional IPOs, SPACs do not have to issue new shares when they take a private company public, which protects the earlier investors of the private company from dilution. After a SPAC goes public, it needs to find a company within the next two years, failing which, it has to return the money raised back to the investors.

There are 400 SPACs currently listed on the stock exchanges that are actively for companies to take public and most of them will have to find their targets by the end of 2022, according to Bunn.

Record M&A deals

Bunn also discussed the record number of M&A deals happening globally.

He said that the global M&A market has been up for three quarters in a row. The last two quarters were the most active M&A quarters in three years. Q4 last year was an all-time record quarter in the United States and Q1 2021 was a record M&A quarter in Europe.