SPACs Raised More than $83 Billion in 2020, Higher than the Past 10 Years Combined

2020 was an outstanding year for Special Purpose Acquisition Companies (SPACs) in the US.

According to the research data analyzed and published by Sijoitusrahastot, the year saw a total of 248 SPACs going public. Compared to the 59 that were reported in 2019, there was a 300% YoY increase. They raised a cumulative $83.04 billion during the year. To put the growth into perspective, SPAC Insider data reveals that in the past 10 years, SPACs raised a collective $47.11 billion.

Over and above the $83 billion, there was a further 18.8 billion raised for business combinations pending IPOs or mergers. As a result of this heightened activity, the market share of US-listed SPAC IPOs reached 53% of all IPOs in 2020 according to SPAC Alpha. That was more than double the 23% share they had in 2019.

Notably, the previous peak in the number of SPACs was set in 2007, when they totaled 66. That was just before the start of the global financial crisis. By 2009, they had significantly lost traction as only one went public.

Activity in the 2020 SPAC market especially picked up during the second half of the year, with over 200 deals closed compared to 34 in H1 2019. October 2020 was the peak month with 53 deals in all. William Ackman’s SPAC was the highest valued during the year, raising a whopping $4 billion.

Average SPAC Trust Size Rises Fivefold from $72 Million in 2010 to $345 Million in 2020

Also known as blank check companies, SPACs offer a faster way to raise funds than the traditional IPO. In traditional IPOs, established companies go public so as to raise funds.

SPACs are shell companies that raise funds through an IPO and then use those funds to acquire existing private companies and take them public. Since they do not have any financial statements to be reviewed, their audit process is much shorter.

In the past, they were considered a last resort for capital raises as they had a high failure rate. But recently, they have had an improved track record and are much bigger in size.

According to a McKinsey report, as of August 2020, 90% of all SPAC deals made during the year closed successfully. Prior to 2015, the success rate was much lower as an average of 20% had to liquidate and return investor money.

Over the past decade, the average trust size has also increased about fivefold. From an average of $71.8 million in 2010, the figure had risen to $344.8 million in 2020.

Due to the extreme market volatility experienced in 2020, many companies postponed IPOs fearing potential failure for their stock debuts. Many others though chose to merge with SPACs sparking the massive upsurge.

Goldman Sachs’ 2020 Underwriting Fees Soar to $3.4 Billion Courtesy of SPACs

One of the best-performing SPACs of the year was Live Oak Acquisition Corp. Following its IPO in May 2020, the company announced a merger with Danimer Scientific, a biopolymer manufacturer. As of December 30, 2020, it had generated a return of 171% from the offer value according to Investopedia.

The second best performer was Kensington Capital Acquisition which had a 162% gain as of the same date. It launched its IPO in June 2020 and had a reverse merger with QuantumScape in September 2020.

TPG Pace Beneficial Finance ranked third with a 154% increase in value since its October IPO launch. The company merged with EVBox Group, an EV-charging technology company, in December.

Other top performers rounding up the top five gainers include Longview Acquisition Corp (110%) and dMY Technology Group (97%).

Wall Street also gained tremendously from the boom, with Goldman Sachs being among the top beneficiaries. In 2020, the bank made $3.41 billion in underwriting fees, bringing in more than the deal-making segment did. During Q4 2020, its underwriting business raked in a stunning $1.12 billion.

Morgan Stanley followed closely behind with a total of $3.09 billion from underwriting fees for the year, up by 81% YoY. JP Morgan Chase was third with $2.76 billion, 66% higher than the 2019 figure. For Jeffries Financial Group, SPACs caused a tripling of underwriting fees, from $362 million in 2019 to $902 million in 2020.

2021 also seems set to be a landmark year for this alternative funding model. By January 11, 2021, 28 SPACs had already launched and 75 had filed for IPOs. In the first three weeks of the year, the number of SPAC IPOs had already surpassed the 2019 annual total.

Based on SPAC Insider data, 118 blank check companies had raised a total of $35.30 billion as of February 7, 2021.