Private Equity Firms Aren’t Worried About SPACs Anymore

Blank-check companies are low on private equity managers’ radars, but they aren’t going away.

Illustration by II

Illustration by II

Private equity and venture capital managers don’t see special purpose acquisition companies as competition, at least now that the SPAC “gold rush” is drying up.

Fund managers ranked blank-check companies last on their list of top competitors in BDO’s private capital pulse survey in March, reflecting questions about the “longer-term viability of the SPAC model,” the firm said in a report on the findings Monday. Because blank-check companies “may not have the cash on their balance sheets to make the acquisitions,” many SPACs need to secure a private investment in public equity, or PIPE deal, in order to make their promises happen.

SPACs are also dwindling in the marketplace: Blank-check company formations fell from 109 in March to 10 as of April 21, with SPAC launches likely slowed by the SEC’s guidance that it would classify SPAC warrants as liabilities, the report said. Over the next six months, respondents said they expect to face the most competition from strategic buyers and investors, followed by hedge funds and mutual funds, sovereign wealth funds, family offices, and other PE and VC firms.

SPACs Are Still on an ‘Aggressive’ Hunt

This dismissal of SPACs by private equity and venture capital managers doesn’t mean blank-check companies don’t pose a threat. Instead, the results provide a taste of “how competitive fund managers believe the 2021 deal-making landscape will be,” BDO said in the report. The governance of SPACs requires the companies to identify and agree to a deal within 18 to 24 months. These parameters, paired with the amount of capital the vehicles have raised, means “SPACs’ hunt for target acquisitions will be aggressive,” the report said.

“I think it speaks to the size of the market,” Scott Hendon, national private equity leader for BDO USA, told Institutional Investor. “[SPACs] have raised a lot of capital and are starting to deploy capital, so I think while it looks like it may be a lesser portion, I still think it relates to how big the actual market is for private equity.”


SPACs had a whirlwind year in 2020, raising around $83.4 billion, according to the report. And they’ve already surpassed that total this year, raking in $99.7 billion by April 21. But despite strong fundraising numbers, PE and VC professionals don’t see SPAC exits as big drivers of deal flow or investment opportunities. In the survey, respondents marked SPAC exits last on the list of key drivers of deal flow.

Instead, respondents marked private company sales and capital raises and succession planning as the key drivers of deal flow and investment opportunities in the next six months. Around half of respondents pointed to private company sales and capital raises as the key drivers in deal flow, versus only 12 percent who saw opportunities in SPAC exits.

“The most attractive targets for acquisitions are companies that have proof of concept, good customer relationships, and are profitable — but realize they are under-managed or under-resourced to scale in their industry and need a partner,” Kenneth Heuer, a principal at Kidd & Company, said in the study. “They know they won’t get much bigger without making some significant changes. “

The survey also found that 91 percent of private fund managers expect asset prices to rise in the next six months, and that they expect risk exposure to be the top challenge to investing and closing deals in the coming quarters.

In addition, 94 percent of fund managers said environmental, social, and governance criteria were either “very” or “somewhat” important in their investment strategies.