By Bernie Dixon


SPACs came out in 2020 like a unicorn tech stock bounding toward success with momentous growth and unimagined adoption rates. With a previously spotty reputation as a kind of substitute for an IPO, SPACs were relegated to the fringes of investments and the finance world.

Like everything else in 2020 that seemed to defy predictability or belief, SPACs experienced never seen or predicted growth. According to Pitchbook, there were over 66 SPACs in 2020 (up from 30 the previous year) that raised upwards of $30 billion, a record amount in one year.


FACT: In 2019, 20% of IPOs were SPACs.

FACT: In 2020 the number of SPACS increased 220%


What are SPACs?

  • SPAC = Special Purpose Acquisition Company, a publicly traded shell company, (listed on an Exchange) with no commercial operations and a trove of cash with the sole purpose of acquiring one or more privately held companies.
  • SPACs are formed by a group of investors, called sponsors. They raise funds from other investors through an initial public offering (IPO) and use the money to acquire an existing privately held company.
  • “Blank check companies” is another term for SPACs.
  • Investors in SPACs can range from well-known private equity funds and underwriters to individual investors to the general public.
  • The SPAC has two years to find and close a deal with a target private company. If no deal is done, the money raised, which is held in an interest-bearing account, is returned to investors.


How a SPAC Works


  • SPACs are generally formed by investors, or sponsors, with expertise in a particular industry or business sector, that target and pursue deals in their area of expertise.
  • Founders may have at least one acquisition target in mind, but do not identify that target in order to avoid long legal disclosures during the IPO process. That is why they are referred to as “blank check companies.”
  • SPACs will pursue underwriters and institutional investors before offering shares to the public. Investors have no idea what company they ultimately will be investing in.
  • The money SPACs raise in an IPO is placed in an interest-bearing trust account. These funds cannot be disbursed except to complete an acquisition or to return the money to investors if the SPAC is liquidated.
  • A SPAC generally has two years to complete a deal. Otherwise, the SPAC faces liquidation. In some cases, some of the interest earned from the trust can be used as the SPAC’s working capital.
  • After an acquisition, a SPAC is usually listed on one of the major stock exchanges.

Twinkie Twinkie little SPAC, an example of a Blank Check Company


In 2014, Twinkies ran a hugely successful PR campaign informing the public that their highly popular and sometimes coveted snack cakes would no longer be made.


I don’t eat Twinkies, but I do remember my first husband coveted the artificial sponge cake with the creamy filling. We even had discussions about the amount of preservatives in a Twinkie and their real half-life. I thought they would last longer than my lifetime. The marriage didn’t last, but Twinkies live on.


The Gores Group, a Los Angeles-based private equity firm, created a blank check company, Gores Holdings in 2015. The company raised $375 million in an IPO that became the vehicle that facilitated the purchase of Twinkie-maker Hostess Brands that year with other institutional investors. Twinkie eaters rejoiced and the Gores Group iced a history making deal.


SPACs that completed deals in 2020 with some notable sponsors.

Here are some 2020 deals and people you may recognize that are involved with SPACs.

  • Social Capital’s Chamath Palihapitiya is the recognized king of SPACs. His SPAC landed a deal with Richard Branson and Virgin Galactic.
  • The sportsbook operator, Draftkings went public as a SPAC in 2020 scoring a $3B valuation at the time of the IPO. Since then, the value has surged.
  • Shaq, Bill Ackman, Pershing Square Tontine Holding and even former House Speaker Paul Ryan raised capital for SPACs in 2020 contributing to a record setting year. Ackman’s group racked up a $4B raise in its offering in July 2020.
  • Big-name underwriters such as Goldman Sachs, Credit Suisse, and Deutsche Bank, as well as retired or semi-retired senior executives looking for a shorter-term opportunity are jumping into SPACs.


SPACs Made a Comeback. What was so compelling about 2020?


Nothing truly made sense about the dynamics of 2020, but a few things are clear:

Market conditions at the start of COVID. Most likely the surge in SPACs was born out of necessity when in March the public markets were drying up. With so much unpredictability, investors were holding onto their capital looking for a more lucrative channel for investments beyond the public markets.

Yeah, well, my favorite entrepreneur to watch, Elon Musk also defied odds and became the richest man in the world with Tesla shares soaring to $880 a share at its peak, an outlier once again.

Any CEO who was tempted to do a roadshow to attract investors found ease with SPACs where the deal is negotiated with one party. If a valuation is not agreed upon, you don’t do a deal and move on. Isn’t that easier than exerting the time and expense of a standard IPO process and then having to pull it at the last minute. The pandemic had its way with the public markets.

Timing.  SPAC’s have the advantage of speed. Investors are familiar with the company and the industries where they operate. When the market is full of pandemic driven uncertainty, getting into the markets fast makes a lot of sense.

Ability to forecast. As an investor, I notice that most fast-growing companies have hockey stick predictions and forecast huge growth in an out year. CEO’s can use hockey stick forecasts as a selling point to SPAC investors to provide them more clarity on growth prospects. Current valuation and growth prospects are what SPACs work with. (CEOs can add up to 20% to the sale price compared to a typical deal with a private equity firm.)

SPACs in 2021

Let’s start with the fact that there are 66 SPACs out there looking to get deals done within 24 months. If they don’t ink deals, they are required to return the funds to investors. That’s never good for the SPAC founder’s reputation. This could get rocky with so much capital that needs to get deployed via SPACs. A few bad decisions by the SPACs or poor performance after an acquisition could return SPACs to their former sketchy reputation. Currently they have an impressive record on raising money. Now let’s see if they can operate public companies and provide investment returns to their sponsors.