When the history of this era of Wall Street is written—and, who knows, maybe I’ll write it myself after my GE book comes out—it may well begin with the onset of the pandemic: Tom Hanks, the scuttled NBA game in Utah, the chaotic weeks between February and March when the Dow Jones Industrial Average dropped some 10,400 points and the Squawk Box team pleaded through the camera with Warren Buffett to buy something, anything, maybe even the airline industry. And then it will be known, of course, for what happened immediately thereafter: an unprecedented rescue package, and then another, more ZIRP, P.P.P., the S.B.E. and then the acronym that would truly define the era: the SPAC.
What made the SPAC party rock was a confluence of many factors, from low interest rates and an unhealthy desire for risk-taking among the general public, to the perceived chance to invest alongside the rich and famous in a bunch of private, potentially high-flying tech companies. It seemed almost irresistible, no? Who could pass up the opportunity to invest in, say, the next Google or Tesla when they were private companies, like those lucky Silicon Valley venture capitalists? And then you throw in some celebs to boot: A Shaq and Serena Williams here; a Steph Curry and Patrick Mahomes there—why, it was a magnificent bouillabaisse! According to SPAC Insider, an industry publication, during 2020 and 2021, 861 SPAC I.P.O.s were completed, raising nearly $250 billion from investors who bought into the idea that the financial geniuses sponsoring the SPACs would be able to find a private company to merge with, and take public, during the two-year lifespan of the original SPAC. (This is called “de-SPAC-ing” in industry parlance.)
But now that frenzy is over. Any number of companies have announced that they are abandoning their SPAC mergers, including recently both Forbes and Vice, as well as SeatGeek, which allows customers to buy and sell tickets, that was set to merge with a SPAC affiliated with Billy Beane, the legendary general manager and Michael Lewis protagonist, among others. Several high-profile SPAC deals, such as those for BuzzFeed and WeWork have sputtered as public companies: BuzzFeed now trades at $2.23 a share, down more than 77 percent since it went public via a SPAC merger six months ago. The infamous WeWork now trades at $6.91 a share, down nearly 42 percent in the last year. Remember how WeWork was once said to be worth $47 billion? It now trades at a valuation of $5 billion. Worse, at least 25 SPACs that found a merger partner and closed on a deal during the pandemic boom have issued “going concern” opinions, meaning that their days are possibly numbered as a viable company and will likely need to be restructured or file for bankruptcy. According to SPAC Insider, the market for SPACs has returned to Earth. So far in 2022, just 67 SPAC I.P.O.s have been completed, raising some $11.6 billion. Yawn.
What to Buy?
With the SPAC detritus starting to be strewn all over Wall Street, I thought it would be interesting to check in on the SPACs of the several people I know who managed to get them done during the boom times. Some of these SPAC sponsors are friends, some are peers, some are my former bosses on Wall Street, some are former Wall Street competitors. But whether they are experienced Wall Streeters or not, they are not absolved from dealing with the quirks of SPACs and the fact that what looked once like easy money has proved to be anything but. (How often have we seen that movie?)
For starters, take D and Z Media, a SPAC created by Betty Liu, a former anchor at Bloomberg Television whose show I appeared on regularly back in the day. In 2016, Betty, a major talent, left Bloomberg TV after more than 11 years to start Radiate, Inc., a media education company. In June 2018, she was named executive vice chairman of the New York Stock Exchange and eventually she also took the position of chief experience officer of the Intercontinental Exchange, which owns the New York Stock Exchange.
At the end of 2020, Liu decided to sponsor her own SPAC. In January 2021, D and Z successfully completed a $250 million I.P.O. Since then, as the Chairman and C.E.O. of D and Z, she has been searching to buy a private company at the intersection of media and technology. She hasn’t found one yet, and has until January 2023 to find a deal, or else she’ll have to return the cash she raised, plus interest, less the millions of dollars in fees she paid to the investment bankers, accountants, and lawyers to get her I.P.O. done.
That’s one of the downsides of the SPAC I.P.O.: the bankers and lawyers get paid to help the sponsor raise the money, but if no deal is completed during the two-year SPAC window, the money goes back to the investors and the sponsor eats the professional fees. It’s one of the truisms of life: the bankers and lawyers always get paid. (In fairness, though, they did do their job of successfully getting the SPAC its money.)
The problem for Betty, and those SPAC sponsors who are on the clock and looking for a merger partner, is that the competition to find a merger partner is fierce. According to SPACInsider, there are some 600 other SPACs looking for private company merger partners while time is running out. The good news for Betty is that the stock price of D and Z Media remains around the $10-per-share I.P.O. price, essentially the per-share value of the cash the company has in the bank and is hoping to deploy in a deal. Given how rocky markets have been in 2022, this qualifies as good news: The D and Z stock price has held up. But still the clock ticks and without a deal Betty’s SPAC money will have to go back to investors.
Joanna Coles, a friend of mine, is the former chief content officer at Hearst magazines and the former editor-in-chief of Cosmopolitan. She is also a famous fashion arbiter and serves on the board of Snap. She too got the SPAC bug, when she left Hearst. She joined forces with Jonathan Ledecky, a well-regarded L.B.O. practitioner and the owner of New York Islanders. (Katie Ledecky, the multiple Olympic gold medalist, is his niece.) Coles and Ledecky have been busy making SPACs (three, in fact) with the names Northern Star Investment Corp. II, III and IV. In January 2021, Northern Star II raised $350 million in an I.P.O. In March 2021, Northern Star III and IV raised $400 million each.
Coles and Ledecky were quickly off to the races. In February 2021, a month after closing Northern Star II, they had reached an agreement to buy Apex Clearing Corporation, a Texas-based clearing and custody company that is part of the plumbing of Wall Street. At the time, Coles and Ledecky valued Apex at $4.7 billion and planned to invest in Apex the money raised in the Northern Star II I.P.O., plus another $450 million in cash raised in a private placement with investors, such as Fidelity and Baron Capital. The deal was supposed to close in the second quarter of 2021. But the shareholder vote on the deal was postponed on several occasions after the Securities and Exchange Commission failed to approve the proxy statement related to the deal.
Finally, last December, Ledecky and Coles pulled the plug on the Apex Clearing deal. Now, the duo are left with three SPACs—and more than $1 billion to spend—and, of course, time is running out. The two-year clock for all three of their SPACs ends in the first quarter of 2023. Unfortunately, the current macro conditions—higher interest rates, a wobbly stock market, investors going risk-off—have made their once-noble task of finding three merger partners much more difficult. Once again, like with Betty Liu, there is some good news for Ledecky and Coles: each of their three SPACs continue to trade at or near the per-share value of the cash the SPACs still have, despite the shaky stock markets.
Ole Doug and Gary
Then there is the saga of Doug Braunstein, my former boss at JPMorgan Chase. When I was at the bank, Braunstein was head of the mergers and acquisitions department. I reported to him until he, and several of his colleagues, arranged for my defenestration in January 2004, paving the way for my return to writing. (Thank you Doug, Julie, Rob and Jennifer.)
Eventually, Braunstein was promoted to be the bank’s chief financial officer, a position he held during the London Whale fiasco, which eventually cost him his job. After JPMorgan Chase, he started a hedge fund and then, in June 2020, joined the SPAC craze. Like Coles and Ledecky, Braunstein stood up three SPACs: Hudson Executive Investment Corp I, II and III. Hudson I raised $414 million in June 2020, early on in the pandemic. Hudson II raised $250 million in January 2021, and Hudson III raised $600 million in February 2021. In January 2021, Hudson I announced the acquisition of Talkspace Inc., the Michael Phelps-endorsed behavioral health-care company. Braunstein valued Talkspace at $1.4 billion.
In addition to the $414 million in Hudson I, Braunstein also raised another $300 million from a group of hedge funds. In June, Hudson I closed the Talkspace deal and Talkspace began its life as a public company, trading on the Nasdaq after its merger with Hudson I. A rare and successful de-SPAC! That was the good news. The bad news is that a year later, Talkspace’s stock is down 84 percent, and trades at $1.60 a share. Its market value is down to around $250 million. A different clock continues to tick for Hudson’s II and III, which, like the Northern Star trio, have until early in the first quarter of 2023 to find a deal, or they will be required to repay investors’ money and eat the underwriting and legal fees related to the two I.P.O.s.
Then there’s Gary Cohn, the former No. 2 at Goldman Sachs who briefly became Donald Trump’s national economic advisor. Gary joined the SPAC craze in a big way in 2020. Combining forces with Cliff Robbins, a former partner at buyout firms KKR and General Atlantic, Cohn Robbins Holdings raised $828 million—one of the larger SPAC I.P.O.s—in September 2020. It was a big splash at the time. The duo also raised another $350 million or so in a private placement from a group of hedge funds. They then went on the prowl.
With the clock ticking, earlier this year, Gary announced that Cohn Robbins would merge with Allwyn Entertainment, an operator of European lotteries owned by Czech businessman Karel Komarek. The deal valued Allwyn at $9.3 billion. Allwyn operates the lotteries in Italy, Austria, Greece, Cyprus and the Czech Republic. It also recently won the right to operate the U.K. national lottery. In a June filing with the S.E.C., Cohn Robbins announced that the Allwyn deal, originally expected to close before the end of June, would now close in the third quarter of 2022. We’ll see if that actually happens.
Unlike some SPACs, where the stock traded up dramatically upon the announcement of a deal, as was the case with the company that announced it was merging with Trump’s Truth Social, investors in the Cohn Robbins stock have taken a far more sober approach to the proposed Allwyn merger. The Cohn Robbins stock has traded around $10 a share, or the value of the cash in the SPAC, month after month after month. It’s hard to know for sure, but the Allwyn deal might just work out for Gary and Cliff. Allwyn has EBITDA of around $900 million annually and appears to be a real company, with real prospects, including perhaps one day running lotteries in the U.S., a market where Allwyn has yet to have a presence.
“A Dirty Word”
Finally, there is Pershing Square Tontine Holdings, the $4 billion SPAC sponsored by hedge fund billionaire Bill Ackman. Ackman got Tontine up and running in July 2020. It remains the largest SPAC ever completed, befitting Bill’s ambitions, and was done with a number of twists that made it unique and less of the typical sponsor money grab. Ackman was the first sponsor, or among the first sponsors, to give a group of minority and diverse Wall Street underwriters a shot at getting a pile of large underwriting fees, in this case around $18 million.
Given the size of Tontine Holdings, Ackman was hunting for big game. Among the companies he hoped he might be able to entice to merge with his monster SPAC were, reportedly, Bloomberg LP, Airbnb and Stripe. But they all demurred, and declined to participate. Then Ackman hit upon a complicated structure whereby Tontine would end up merging with the private Universal Music Group, which was controlled by Vivendi, the French conglomerate. But that structure got nixed by the S.E.C. and, in the end, Ackman made an investment in Universal Music Group through his hedge fund, Pershing Square, not his SPAC, Tontine Holdings.
Like Liu, Coles, and Ledecky, he’s now racing against the hour glass. He has about a month to ink a deal, if he can, before the money has to be returned to Tontine’s investors and Ackman has to absorb the underwriting and legal fees associated with setting up Tontine. But it’s looking increasingly unlikely that he’ll announce a deal by the deadline, as he basically admitted on a May 23 conference call with Wall Street analysts. Tontine has been sued by two law professors related to the failed Tontine/UMG deal—who Ackman called “opportunistic plaintiffs”—which, he said, has not been “great for our ability to do a transaction.” And there has been what Ackman said was “the demise of the SPAC industry,” where “SPAC” has become “a dirty word,” and where almost every SPAC that did a deal has traded down, not up.
He says he’s still on the prowl but time is running out. “What we committed to our investors in Tontine was we would only do a great deal,” Ackman said on May 23. “And we continue to want to only do a great deal. We’ve seen lots of mediocre transactions. We’ve seen transactions of good companies at the wrong price. And we’ve seen some really interesting situations, but where there isn’t a sufficient amount of time to consummate a transaction by the time for our date, and we are still working until we run out of time to see if we can complete a transaction. But what I can assure you is, if we do a transaction, it will be a great one. If we don’t do a transaction, we’re simply going to send people’s money back.” He declined to elaborate further to me, but it seems increasingly likely that Bill Ackman’s great big SPAC experiment will be coming to an end very shortly.
It’s not all gloom and doom on the SPAC front, though. The other day, I met Jeremy Allaire at a Manhattan dinner party. Allaire, an accomplished entrepreneur, is the C.E.O. of Circle, which is part of the consortium that manages USD Coin, a popular crypto stablecoin. In July 2021, Circle reached an agreement to merge with Concord Acquisition Corp., a SPAC sponsored by my friend Bob Diamond, the former C.E.O. of Barclays. Concord, an affiliate of Diamond’s Atlas Merchant Capital LLC, raised $240 million in December 2020 and then began searching for a merger partner in the financial services industry. At the time of the announcement of the Concord/Circle deal, the two companies agreed to value Circle at $4.5 billion, with a closing scheduled for the fourth quarter of 2021.
But Circle was outperforming expectations during the crypto boom, and Allaire wanted to re-cut the deal with Concord. In February, Circle terminated its SPAC deal with Concord but then announced a new deal with Concord that valued Circle at $9 billion, or double where it had been valued eight months before. Allaire seems sanguine about his SPAC deal, if not for SPACs more generally. The market seems to approve, too, or at least doesn’t disapprove. After Concord’s stock traded up to around $10.50 a share after the revised Circle deal was announced, it now trades back around $10 a share, the value of the cash in the SPAC. The revised deal is expected to close in December 2022. Diamond remains optimistic the deal will happen, too. “We continue to believe that Circle is one of the most interesting, innovative and exciting companies in the evolution of global finance and we believe it will have an historic impact on the global economic system,” he said, in February. Good for him. Diamond, who ended his run at Barclays prematurely after a whole bunch of drama related to a LIBOR scandal involving several of the bank’s traders, may end up going down in the history books as one of this era’s SPAC kings along with Gary Cohn, or maybe not. The ending for SPACs still has time to be written, or re-written as the case may be.