Name: The Spactacular boom on Wall Street
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The Spactacular boom on Wall Street

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T IS EASY to mock SPACs. For decades these “special purpose acquisition vehicles”, publicly listed pots of capital raised by investors who seek out private firms to merge with, have ushered a small number of flaky and irrelevant companies onto public markets. The present SPAC boom on Wall Street began last year and, true to form, features celebrities-on-the-make, failed bosses looking for redemption and credulous investors keeping their eyes wide shut. Yet it is undeniable that something more serious is also now taking place. The amount of money raised by SPACs in the past 12 months has soared to over $120bn, according to Bloomberg. In a few weeks this year as much has been raised as in the first half of 2020. The boom is spreading to Europe, and Amsterdam is racing ahead of London as a favoured venue (see ). Serious companies are getting involved, too. Two of Asia’s leading digital firms, Gojek and Tokopedia, are said to be considering using a SPAC to list in New York, which would be an alternative to a conventional initial public offering (IPO).Enjoy more audio and podcasts on or .In an IPO a firm hires bankers who help it sell shares at an agreed price to mainly institutional investors in an elaborate process set out by regulators. The SPAC approach turns that on its head. A group of investors float a shell company, giving it a pot of cash. It then hunts for an unlisted target firm and offers to merge with it, raising a second round of cash from investors as it does so. If you are a firm that wants to go public, a marriage with a SPAC is relatively quick and certain.. Banks charge fees of 5-7% of the capital raised. Bankers manage the IPO price, and stand accused of setting it artificially low in order to give a “pop” to the pals they deal with routinely in the public markets at the expense of founders and early backers. For over a decade many exciting firms have stayed sheltered in private markets, an option afforded them by well-funded venture-capital investors like Son Masayoshi of SoftBank. As a result, the value of cash raised by IPOs as a share of America’s overall stockmarket value had been in decline for years.The SPAC boom has a whiff of the bubble about it—and some projects will end in tears. But with the right design, SPACs can become a familiar and useful device for investors. They give firms more options for going public and will encourage regulators and bankers to improve the IPO process. Rational risk-taking by investors, capital-raising by exciting firms and the expansion of public markets are all things that should be welcomed. Even if some SPACs crash and burn, the idea behind them is a buy.This article appeared in the Leaders section of the print edition under the headline "Spactacular"A daily email with the best of our journalismSign up

T IS EASY to mock SPACs. For decades these “special purpose acquisition vehicles”, publicly listed pots of capital raised by investors who seek out private firms to merge with, have ushered a small number of flaky and irrelevant companies onto public markets. The present SPAC boom on Wall Street began last year and, true to form, features celebrities-on-the-make, failed bosses looking for redemption and credulous investors keeping their eyes wide shut. Yet it is undeniable that something more serious is also now taking place. The amount of money raised by SPACs in the past 12 months has...

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