On March 31st, the SEC’s Acting Chief Accountant, Paul Munter, issued a lengthy “public statement” detailing concerns about private companies' readiness that go public through a SPAC merger to be successful as listed companies. His admonitions come as SPAC IPOs have exploded in the first quarter of 2021, with 298 SPACs raising over $87 billion, nearly 24 times the $3.49 billion raised by 13 SPACs during the comparable period in 2020. At the same time, SPAC IPOs that had been trading at huge premia to the cash held in trust and outperforming the S&P back in February have seen a significant retrenchment, with an average return of just 1.5% for SPACs that debuted in Q1 2021, according to Renaissance Capital.
In 2020, China dominated the global IPO market as never before. 565 new public companies were born through listings on China’s domestic markets, Hong Kong, and the U.S. exchanges, raking in $133 billion dollars. That is up by 51% from 2019 and compares to $78.2 billion raised by 218 operating companies on the U.S. markets during the same period. While the U.S. still led the world in capital raising last year, that was primarily due to the unprecedented 248 SPAC IPOs that raised $75.5 billion dollars. In 2021, SPAC IPOs based in Asia are taking off as experienced private equity, venture, and hedge fund investors launch their own SPAC initiatives. A SPAC merger creates yet another option for the management teams of companies from Greater China to consider in order to raise capital and obtain public status on an accelerated timeframe.
In the past 18 months, many of the biggest names in finance have embraced SPACs, as they became an obsession of both retail investors and the financial media. So far in 2021, 264 SPAC IPOs have gone public, raising $77 billion — a pace of over $1.5 billion per trading day. This compares to 71 operating companies that have IPOed thus far this year, raising $30.1 billion.
If any dealmaker felt the pandemic pinch, one would expect it to be Euan Rellie, founder of cross-border M&A boutique investment bank BDA Partners. The sun never sets on BDA’s sprawling network of corporate matchmakers, with offices across Asia’s burgeoning economies, New York, and London. But COVID travel restrictions meant bankers and clients alike had their wings clipped for most of 2020, unable to peruse the tasty corporate assets on offer in places like China, Vietnam, India, and Korea.
The U.S. IPO market is off to a rollicking start in 2021, with 114 new listings in the month of January that have raised $36.1 billion. The top performer so far? RLX Technology, the Chinese e-cigarette purveyor that rocketed 146% on the first day's trading, is currently hovering at twice its offering price.
The White House put over a dozen Chinese companies on an investment blacklist. Congress passed legislation to enforce long-neglected requirements for audit inspections or delist the offending companies from U.S. exchanges. China’s government announced antitrust investigations that shook the value of internet goliaths, Alibaba and Tencent.
On December 2nd, 2020, the House of Representatives unanimously approved a bill that would bar Chinese companies from trading in the U.S. if their auditors are not subject to inspections by the PCAOB within three years. The "Holding Foreign Companies Accountable Act" was passed by the Senate in May and will now be sent to President Trump to be signed into law.
For those unfamiliar with the term, SPACs, also known as ‘blank check companies’, seek to pool money from investors with a plan to acquire an existing asset. For example, it could be a company whose existing investors are looking for an exit and would be happy to sell their interest. For companies, it gives them a convenient method of getting onto an exchange – SPACs are already listed on stock markets through an initial public offering (IPO) – and it gives the people backing the SPAC a chance to quickly get exposure to an emerging trend like the stock market bull run experienced by technology companies this year.
While special purpose acquisition companies (SPACs) have existed since the early 1990s, these investment vehicles have gained popularity in recent years. SPAC IPOs have raised over $49 billion thus far in 2020, outstripping all prior records, and many more have filed to go public by the end of the year. While in the past, most SPACs were taken public by boutique investment bankers and raised tens of millions of dollars, today, nearly every "bulge bracket" firm has led a SPACs deal, with proceeds up to hundreds of millions or even billions of dollars.
Despite a directive from a White House working group that could lead the SEC to close the door to companies whose auditors are not PCAOB-inspected, Chinese companies continued to raise significant amounts of capital on U.S. exchanges in the third quarter of 2020.