The SPAC mania is showing signs of wear and tear with clogged deal pipelines, heightened regulatory scrutiny and concerns over the quality of the deals that have been done.
Real estate titan Sternlicht joked that a member of his domestic staff—his “very talented house manager”—probably could pull off a SPAC. He told CNBC last month that “if you can walk, you can do a SPAC,” and pointed out that many of the people behind blank-check firms are failed money managers or executives.
“Three days due diligence means you check the letterhead and find out if the company exists,” Sternlicht told CNBC. “It’s a little out of control. No, it’s a lot out of control.”
But Sternlicht is convinced he’s got the secret sauce. His Jaws Spitfire Acquisition Corp. is merging with Velo3D, a maker of 3-D metal printers, valuing the company at $1.6 billion. Jaws Acquisition Corp., another SPAC he’s backed, is merging with health-care provider Cano in a deal valued at $4.4 billion.
Even if SPACs flounder, it won’t necessarily hurt the family offices that have already launched blank-check companies.
SPAC sponsors typically buy shares in firms they create at a fraction of the standard $10 price offered to IPO investors. They usually own about 20% of the blank-check firm’s equity after it goes public and can bolster their returns further through debt or equity financing and stock options.
The family office of payments-processing entrepreneur Ed Freedman, for example, is linked to the sponsor of Stable Road Acquisition Corp., which agreed in October to merge with space-transportation company Momentus. The blank-check firm, which has until next month to complete the deal, is seeking shareholder approval to extend the deadline.
If they fully vest, a group of shares the sponsor acquired for about $5 million will be worth more than nine times that amount—an 800% gain—even if the company’s stock price remains at $10, according to data compiled by Bloomberg. Freedman’s family office has also loaned the SPAC $300,000 and agreed to invest an additional $3 million at a price of $10 per share, filings show. Stable Road closed Thursday at $10.56 a share.
A Stable Road spokesperson declined to comment.
SPACs typically have as long as two years to find a company to acquire. If they fail to do so, they have to return cash plus interest to investors, while the sponsor forfeits their original investment.
Thimble Point’s Boms said he began considering a SPAC about a year ago after trying to take companies public through reverse mergers. He said he’s had more than 100 meetings with prospective acquisitions since the company’s IPO. Of the roughly 600 SPACs that have listed since the start of last year, less than a third have announced deals and about 30 have completed them, according data compiled by Bloomberg.
“We have a very, very solid hit list,” Boms said. “We are talking to people right now.”
—With assistance from Tom Maloney and Michael Hytha.
This article was provided by Bloomberg News.