A special purpose acquisition company (SPAC) is a publicly traded shell company that has the purpose of taking a private company public. SPACs raise money through an initial public offering (IPO) and use the cash to acquire a company -- effectively taking the acquired company public in the process. The buzz around SPACs has led to a record-breaking number of them going public in 2020.
As SPACs are increasing in popularity, veteran hedge fund managers are getting in on the action.
Bill Ackman's Pershing Square Tontine Holdings
Bill Ackman is a renowned figure among market watchers. He has been named one of the world's top 20 hedge fund managers and has posted strong returns for investors through Pershing Square Capital Management. Now Ackman has made history once again by filing for the largest-ever SPAC.
Ackman's new SPAC, Pershing Square Tontine Holdings (NYSE:PSTH.U), has raised $4 billion since launching in July. Pershing Square Tontine Holdings has put its own twist on the SPAC structure. For example, the SPAC's IPO offering price was $20, unlike most SPACs that have an offering price of $10 per share. Along with the non-traditional price per share, the SPAC has issued redeemable warrants, which are forfeited by investors who elect to withdraw their money from the SPAC before a deal is completed -- this incentivizes investors to stay invested for the long run.
As the largest SPAC ever, the company is most likely targeting what it calls a "mature unicorn." A mature unicorn is a very large private company that could have a huge initial public offering itself. Some rumors have named the apartment rental website Airbnb and rocket company SpaceX as potential companies.
Larry Robbins' Longview Acquisition Corp.
Like Bill Ackman, Larry Robbins is a well-known billionaire hedge-fund manager who is getting into the SPAC game. Robbins' hedge fund, Glenview Capital Management, made a name for itself by investing in stable and predictable companies, particularly in the healthcare sector.
Following the typical structure of a SPAC, Longview Acquisition Corp. (NYSE:LGVW) raised $300 million when it IPOed this year. The company will follow in the footsteps of Glenview Capital and focus on investing in a stable and predictable company in the healthcare industry.
Given Robbins' investment track record, investors should take note of this SPAC.
Hudson Executive Investment Corp.
Hudson Executive Investment Corp. (Nasdaq: HECC.U) is yet another SPAC created by a hedge fund manager. The SPAC was founded by former JPMorgan Chase CFO Douglas Braunstein, who worked to rebuild the banking giant after the financial crisis.
Braunstein will leverage his experience in the financial services industry to identify a company operating in financial services or financial technology (fintech) for Hudson Executive to acquire. The fintech industry is full of interesting up-and-coming businesses, so it will be interesting to see what the SPAC acquires.
SPACs are more popular than hedge funds
2020 has been a banner year for SPACs, as there has been surging interest from both public market investors and selling companies. There are already over 50 SPACs that have IPOed this year, and they have raised over $20 billion.
In contrast, hedge funds seem to be closing left and right. Asset managers are simply pivoting to where the investors have expressed interest. Why wouldn't hedge fund managers choose to raise money with SPACs?