Posted on Oct 14, 2020 at 12:38 PMUpdated Oct 14, 2020, 1:41 PM
Rajeev Misra, head of Sofbank’s Vision Fund, had a vision at the Milken Institute seminar created by Michael Milken, the fallen king of “junk bonds.” Softbank will resort to the martingale that panics Wall Street, the famous “SPAC” (special purpose acquisition company), according to the Bloomberg agency. These financial companies listed on the stock market have only one objective, to buy out an unlisted company and allow its target to carry out an initial public offering in accelerated mode (without a “road show” to investors). A practical solution when the economy and global finance are struggling in a long and constraining health crisis.
Having hardly been able to raise money for its second fund, Vision II, Softbank hopes to make up for it with its PSPC. He rides on the craze for this type of hybrid financial transactions, between IPOs and acquisitions. Softbank wants to appeal to investors and also bet its own money (from Vision II), around $ 500 million, to fuel its PSPC. He will deliver details in the next 15 days. He intends to buy a rather mature company, and not a young shoot that has just hatched. Investment banks like Goldman Sachs are hoping to work on this high commission transaction.
Its $ 100 billion Vision I fund this year sold shares (part of its stake in Alibaba and virtually all of its stake in T-Mobile US) to recover cash. Softbank’s price is on the rise again and is up 55% this year. Softbank has had some setbacks in its Vision I fund. The Saudi sovereign fund, Public investment fund, and Mubadala, one of the Abu Dhabi funds, have invested there. This was also the case with Apple and Microsoft. Softbank’s Vision I fund holds interests in 82 companies including Uber and wework.
Investors who buy shares from a SPAC give it a blank check. They ignore the name of the target until the last moment. They are hopeful that he will complete an acquisition at attractive valuations and are counting on the expertise of the sponsor of PSPC to make the right choices.
More practical than IPOs, PSPCs are also riskier and less profitable. According to Renaissance Capital, out of 223 SPACs between 2015 and July 2020, 89 (40%) completed an acquisition. Sometimes the PSPC is dissolved if no redemption is made after 24 months.
Shareholders can also oppose an acquisition. The prices of companies IPOs through SPACs have lost on average nearly 19% since 2015 and against a gain of 37.2% for traditional IPOs. Only 30% saw their course progress.
However, performance has improved significantly this year. Out of 21 operations, the average increase is nearly 13%. Leading the way are DraftKings, Nikola, Virgin Galactic. Jason Robins, chief executive of Draftkings, whose market valuation has increased fourfold in 4 months to $ 13 billion at the end of August, told CNBC he “Hoped the market would calm down a bit. PSPCs are operations that are not suitable for all types of companies ”.
Craze on Wall Street
Founded in the 1980s, PSPCs (publicly traded funds that aim for acquisitions) have experienced a new wave of speculation thanks to COVID-19. 138 PSPC raised $ 53.8 billion (of which 60% in the third quarter) according to SPAC Research. Between 2019 and 2017 it was between 10 and 14 billion dollars per year. A quarter of the money collected goes towards acquisitions in TMT (technology, media, telecoms), 8% in consumer goods and 7% in health. Other sectors, energy and finance. Half of PSPCs do not provide targeted areas for their buyouts. In the third quarter, PSPC made 35 acquisitions for $ 73 billion. Besides the money they collect, PSPCs can also raise debt for their redemptions. This market is concentrated in the United States but the place of London wants to attract the issuers of these financial transactions, which are much more profitable for bankers than traditional IPOs.