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Apollo-Backed SPAC Strikes Deal as Goldman Raises Bubble Concerns

Apollo-sponsored Spartan Acquisition Corp. II is merging with Sunlight in a deal that attracted high-profile investors including Chamath Palihapitiya and BlackRock.

A special purpose acquisition company backed by Apollo Global Management has become one of the latest blank-check companies to announce a merger, providing details of the $1.3 billion deal just as Goldman Sachs Group warned of “bubble-like sentiment” in the SPAC market.

Apollo-sponsored blank-check company Spartan Acquisition Corp. II announced Monday that it has agreed to merge with solar financing business Sunlight Financial. The deal includes Chamath Palihapitiya, Coatue Management, and BlackRock as investors. When the merger is completed, the solar financing business will become a public company renamed Sunlight Financial Holdings. 

The deal follows a flurry of SPAC activity in the first weeks of 2021, with blank-check companies completing 56 initial public offerings to raise a total $16 billion in their pursuit of mergers, according to a Goldman portfolio strategy research report from the evening of January 22. Goldman called 2020 the “Year of the SPAC,” as the total $76 billion raised from 229 U.S. blank check companies was six times higher than in 2019.

Apollo-sponsored Spartan Acquisition Corp. II announced last year that it priced its IPO at $10 a unit in November, raising $300 million. The SPAC expects to complete its merger with Sunlight, a fintech platform that offers solar loans to homeowners, in the second quarter. 

“Sunlight partners with contractors and capital providers to accelerate the United States’ transition to a clean energy future,” Matt Potere, the company’s chief executive officer, said in the merger announcement. He pointed to the support of Sunlight’s major equity holders and “the value they bring to our areas of core competence,” saying they will remain the company’s largest shareholders after the deal closes. 

Sunlight’s existing equity owners include private equity firms Tiger Infrastructure Partners and FTV Capital, as well as its founder Hudson Sustainable Group.

An investment group led by Social Capital founder Palihapitiya, hedge fund firm Coatue, funds managed by BlackRock, Franklin Templeton, and accounts tied to Neuberger Berman Group have committed $250 million to privately purchase Spartan’s common shares at $10 each immediately before the merger is completed, according to the announcement Monday.

The private investment will give the group about 19 percent ownership of the combined company, compared to about 50 percent for Sunlight’s existing equity owners and a stake of about 26 percent for Spartan stockholders, according to the announcement. The SPAC merger values Sunlight’s equity at $1.3 billion.

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While Goldman cautioned clients generally about SPACs and other pockets of concern, the bank’s strategists view the aggregate equity market as “reasonably valued,” according to their report. “Importantly, we see little risk to public equity markets should investor enthusiasm for SPACs subside,” they wrote, saying it probably won’t fade anytime soon.  

“Low interest rates, the flexible structure, and the two-year window to find a target before returning capital suggest the popularity of SPACs will continue in the near term,” they said in the report.

Max Gokhman, who oversees $32 billion as head of asset allocation at Pacific Life Fund Advisors, told Institutional Investor in a phone interview that SPAC mania has arrived at his desk in the form of vague, unsolicited pitches to invest in planned blank check companies. Gokhman explained that last year he started receiving emails along the lines of, “Hey, we’re launching a SPAC fund. Are you interested?” 

That worries him, even if he finds nothing wrong the SPAC concept. 

“That make no sense,” he said. “You typically wouldn’t have someone say, ‘Hey, we’re issuing a bond. Are you interested?’”

Gokhman hasn’t invested in the SPAC boom, though that’s not because he’s determined to avoid any and all deals. He said he would not invest in the IPO of a shell company, but could get comfortable with a SPAC merger if he liked the deal valuation, as well as the strength and experience of the management team and sponsor. 

Meanwhile, Pacific Life Fund Advisors is “fairly bullish on stocks” for 2021 — even as the firm considers parts of the market frothy, he said. Large growth stocks, particularly in “consumer-facing tech,” have valuations that are hard to justify, while good investment opportunities remain in some mid-sized tech companies, according to Gokhman.

In Goldman’s portfolio strategy report, the firm warned that, beyond SPACs, “extremely high-growth, high-multiple stocks” are an area of concern, with pricing soaring for companies without earnings. “The sharp recent outperformance of stocks with negative earnings is another potentially bubble-like phenomenon that many clients have highlighted,” the Goldman strategists wrote in the report. 

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