A special purpose acquisition company (SPAC) is a publicly traded shell company that raises capital for the purpose of acquiring a privately held company. SPACs raise money through initial public offerings (IPOs) and use the funds to purchase companies, effectively taking them public. SPACs have become more popular in 2020 as investors have invested with the hopes of striking it big on the next high-profile IPO, and companies have found the SPAC structure to be a convenient source of liquidity.
The Gores Group is no rookie when it comes to developing SPACs -- the investment firm has just filed for its fifth. Gores Group is fully capitalizing the moment that SPACs are having, which has led some investors to dub it the "King of SPACs."
Will the new entity be as successful as prior iterations?
Gores Group: King of SPACs
Gores Group is led by Alec Gores, who has extensive experience as an entrepreneur, business operator, private equity investor, and now SPAC manager.
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The journey to being crowned the "King of SPACs" began in 2016 with the first SPAC, Gores Holdings I, which acquired Hostess Brands Inc. (TWNK) for $2.3 billion. Hostess Brands is the iconic baker brand responsible for popularizing the Twinkie. The company's stock has made investors money since it was taken public by the first Gores Group SPAC, although it would be a stretch to call it a home run. The SPAC IPOed at $10, and now trades roughly at $12 -- not quite keeping pace with the overall market.
Gores Holdings I was the kick-start to what would become a Gores Group SPAC franchise. Gores Holdings II was created in August 2016 shortly after the completion of Gores Holdings I. The second SPAC was used to acquire Verra Mobility Corp. (VRRM -0.53%) for $2.4 billion in October 2018. Verra Mobility is a tech company focused on managing traffic lights and connecting different city hardware with smart software. Verra Mobility had strong stock price performance, rising more than 60% from its offering price before the COVID-19 pandemic took the wind out of its sails.
For its third SPAC, Gores Group acquired PAE, Inc. (PAE) at the start of 2020. PAE is a U.S. government contractor providing a wide range of support services. It is a bit early to judge the success of the PAE SPAC IPO, but the stock trades around $8 per share, which is underwater from its initial offering price of $10.
Gores Group also raised funds for a fourth SPAC, Gores Holdings IV, Inc. (GHIV), in January 2020. The company is still looking for a prospect to acquire, but it will be focusing on industries that highlight the management team's expertise.
A fifth SPAC
Gores has now filed to raise capital for a fifth SPAC, Gores Holdings V, despite the fact that it has not yet identified an acquisition for the fourth SPAC, Gores IV. The SPAC aims to raise $400 million in its IPO, which would be in line with what it raised for the fourth SPAC.
Why is Gores fundraising for a fifth SPAC when its fourth SPAC is still searching for a deal? Reading between the lines, it looks like Gores is close to getting a deal done for the prior SPAC, and it may have additional acquisition candidates that it doesn't want to miss out on. Either way, this is likely a good signal for investors -- Gores Group sees a lot of opportunities to take advantage of.
SPACs are rising in popularity
SPACs are rising in popularity among investors. Over 50 SPACs have IPOed so far this year, raising over $20 billion. Some recent high-profile SPACs, including Pershing Square Tontine Holdings (PSTH.U) and Churchill Capital Corp. IV (CCIV.U), have managed to create investment vehicles backed by multi-billion cash hordes.
The Gores Group is clearly capitalizing on the moment. The investment firm was utilizing SPACs for years before they were popular and is not taking a break to raise additional funds now that investor demand is there to support the model. So be on the lookout for what the King of SPACs is up to next.
