How the SPAC Boom Could Spill Over Into Private Equity

Pitchbook predicts that in 2021, at least 20 private equity-backed companies could go public via a SPAC.

Michael Nagle/Bloomberg

Michael Nagle/Bloomberg

This year’s boom in special-purpose acquisition companies could make way for at least 20 private equity-backed companies to go public in 2021, according to PitchBook.

It has been a banner year for SPACs: Over 200 launched in 2020, dwarfing the 52 raised in 2019. This year alone, SPACs have raised as much money as they did over the previous decade, as Institutional Investor previously reported.

Typically used to take private companies public via a merger, SPACs have two years to complete a deal before returning capital to investors. This year, a few SPACs took private-equity-backed companies public — a rarity, according to PitchBook’s senior private equity analyst Wylie Fernyhough.

“I can’t even remember the last time, if any, I’ve seen a private equity-backed company go public via a SPAC,” Fernyhough said by phone Tuesday. “We’ve seen a few this year.”

For example, GCM Grosvenor, an asset manager backed by Hellman and Friedman, merged with a Cantor Fitzgerald-sponsored SPAC in a deal announced in August. Advantage Solutions — a marketing and sales agency backed by CVC Capital Partners, Bain Capital, and Leonard Green & Partners — also went public through a SPAC in October.

While Fernyhough conceded that his prediction that 20 of these deals will take place in 2021 is bold, he still believes it’s possible, particularly given the attractive nature of private-equity owned companies.

“Some of these private-equity owned firms could be attractive for a SPAC to target because going through private equity ownership at least ensures a quality of governance,” Fernyhough said, adding that cost-cutting measures and leadership changes may also be appealing to the public markets.

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In the past, companies that went public via a SPAC tended to underperform, Fernyhough said. But that could change in this latest boom, as the quality of SPAC sponsors has, in his view, improved.

Fernyhough said private equity firms may also see the SPAC market as one where it’s easy to raise money. That, coupled with team members’ expertise, could make a SPAC an attractive option for exiting investments.

“There are a number of SPAC sponsors that are still cash grabs,” he said. “I think what we’re seeing is a transition toward higher-quality, more institutionalized SPAC offerings.”