Ackman SPAC Attack

I wrote about the booming world of special-purpose acquisition companies, or SPACs, back in January. At the time, the still-relatively obscure "blank-check companies" were coming off a record 2019, having raised $13.6 billion in 59 initial public offerings last year.

Rather than killing off the relatively new and speculative structure, the Covid-19 crisis has supercharged the trend toward better-known and higher quality players getting involved in the space. The numbers are stunning: Even with a five-week pause while the IPO market was effectively shut in March and April, 32 SPACs have gone public, raising $10.5 billion this year. That's nearly half of all IPO dollars generated in 2020.

And some of this year's buzziest stocks have come from the back end of a SPAC's lifecycle: the merger or acquisition of an operating business. Count electric and fuel-cell start-up Nikola, online sports-betting site DraftKings, and spaceflight company Virgin Galactic as new stocks formed by mergers with SPACs this year. They have each inspired cult followings and seen their stocks multiply several times over.

I wrote about SPACs during the Covid-19 market in Barron's latest issue over the weekend.
Monday, Bill Ackman’s Pershing Square made a splash with a securities filing for a potential $3 billion SPAC IPO. Add other funding committments, and the SPAC could have almost $6.5 billion in funding to pursue a deal with a large private company.

Ackman is eager to go big-game hunting: The SPAC's acquisition criteria specifiy that it will seek a minority stake of a company large enough to be eligible for inclusion in the S&P 500.

Here's more on the SPAC's potential targets:

The filing also refers to 'Mature Unicorns'—privately held, venture-backed businesses that have reached large scale, market share, and cash flow. The Covid-19 crisis and its market volatility has made the traditional IPO route less attractive to many of those companies, while private funding options may be more limited. And sales may be down if operations are impacted by the pandemic or recession. Pershing Square sees an opportunity to address both needs via its proposed SPAC, offering funding and a different path to public markets.

The offering includes several terms that are uncommon in the parade of SPACs, including a $20 IPO price—the convention is $10—and warrants that investors get only if they don't redeem their shares for cash at the time of the merger, a problem that some SPACs have faced.

The proposed SPAC, Pershing Square Tontine Holdings, will trade on the New York Stock Exchange under the tickers PSTH for its shares and PSTH.WS for its warrants.

Read more about Pershing Square's SPAC and why the hedge fund wants in on the action here.