Return of the SPAC: They're Back and Bigger than Ever
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Return of the SPAC: They’re Back and Bigger than Ever

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SPAC IPOs 2020

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The Briefing

  • Special Purpose Acquisition Companies (SPACs) are shell companies created with the sole intent to raise capital and buy a private organization, or a stake in a company
  • In 2020, 248 new SPACs went public, an increase of more than 300% from 2019
  • 2020 was a record-breaking year for SPACs on many fronts. For instance, Bill Ackman’s Pershing Square Tontine Holdings raised $4 billion—the largest raised in SPAC history

SPACs are Back and Bigger than Ever

In 2020, SPACs raised over $82 billion in capital. That’s more funds in one year than in the last 10 years combined.

But what exactly is a SPAC, and how have they changed over the years?

SPAC IPOs versus Traditional IPOs

SPAC IPOs are essentially the opposite of traditional IPOs.

In a traditional IPO, an established company goes public to raise funds. In contrast, SPAC IPOs involve a shell company that’s already raised capital and is looking to purchase an organization (or a stake in a company).

While traditional IPOs are seeking funds, SPAC IPOs already have the funds—what they’re seeking is an organization to attach themselves to.

SPACs, also known as “Blank Check” companies, provide a faster way to raise funds compared to traditional IPOs. That’s because the audit process for a SPAC is shorter, since they don’t have any financial statements to review.

A Brief History of SPACs

248 SPACs went public in 2020—189 more than in 2019.

2020 has by far been the biggest year for SPACs in the last few decades. Here’s a look at the number of SPAC IPOs over the last 15 years, along with their average size:

Year# of SPAC IPOsAverage IPO Size (M)
200528$75.5
200637$91.5
200766$183.2
200817$226.0
20091$36.0
20107$71.8
201116$69.4
20129$54.5
201310$144.7
201412$145.8
201520$195.1
201613$269.2
201734$295.5
201846$233.7
201959$230.5
2020248$334.4

SPACs had a brief moment in 2007 prior to the financial crisis, but by 2009 they had lost traction—that year, only one SPAC IPO went public. However, in the last few years, SPACs have picked up momentum again.

And in 2020, the use of this curious go-public vehicle has skyrocketed.

The New and Improved SPACs of 2020

Historically, SPACs haven’t had the highest returns for investors. In fact, they were once considered a last resort when it came to raising capital.

But in the last few years, SPACs have ramped up their game. According to a recent report by McKinsey & Company, there have been three significant changes:

  1. Improved track record
    In 2020, more than 90% of SPAC deals closed. That’s a notable improvement compared to previous years—before 2015, at least 20% of SPACs liquidated.
  2. Bigger in size
    The average SPAC trust size is 5x larger than it was a decade ago.
  3. Well-known participants
    Some high-profile investors have jumped on the SPAC-train this year, which has helped generate hype.

While some experts are expecting the popularity of the SPAC to continue in 2021, it’s still early days. So it’s hard to know for certain if SPACs are back for the long-haul.

»If you found this article interesting, you might enjoy this full-length post on traditional IPOs: The World’s Largest IPOs Adjusted For Inflation

Where does this data come from?

Source: SPAC Data
Details: All US-listed SPACs are included in the data set. Figures as of Dec 30, 2020

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Datastream

Seeing Red: Is the Heydey of Pandemic Stocks Over?

Worries over post-COVID demand and rising interest rates have fueled a market selloff, with pandemic stocks hit particularly hard.

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pandemic stocks

The Briefing

  • Global equities are in a downward spiral, and experienced their worst week in more than a year.
  • Worries about slowing post-COVID demand and rising rates fueled the selloff.
  • Pandemic stocks were some of the hardest hit, with Shopify and Netflix dropping 35.3% and 33.5% respectively.

Seeing Red: Is the Heydey of Pandemic Stocks Over?

The stock market, and the stocks that flourished during the COVID-19 pandemic in particular, are off to a rough start in 2022. If you’ve been watching your investment accounts, chances are you’ve been seeing a lot of red. Shaken by the uncertainty of a pandemic recovery and future interest rate hikes, investors have been selling off their stocks.

This market selloff—which occurs when investors sell a large volume of securities in a short period of time, leading to a rapid decline in price—has investors concerned. In fact, search interest for the term “selloff” recently reached peak interest of 100.

2022 market selloff

Which stocks were the hardest hit, and how much are their prices down so far this year?

The Lackluster Returns of Pandemic Stocks

Pandemic stocks and tech-centric companies have suffered the most. Here’s a closer look at the year-to-date price returns for select stocks.

CompanyYear-to-Date Price Return
Shopify-35.3%
Roblox-30.2%
Block-28.0%
Moderna-31.9%
Zoom-19.9%
Netflix-33.5%
Snapchat-31.1%
Peloton-23.1%
Coinbase-23.5%
DocuSign-26.0%
Amazon-16.3%
Robinhood-29.6%

Price returns are in U.S. dollars based on data from January 3, 2022 to January 21, 2022.

Netflix fueled the selloff after it reported disappointing subscriber growth. The company added 8.28 million subscribers in the fourth quarter, which is less than the 8.5 million it added in the fourth quarter of 2020. It also projects to have slower year-over-year subscriber growth in the near term, citing competition from other streaming companies.

Meanwhile, Coinbase stock lost nearly a quarter of its value so far this year. As the price of cryptocurrencies such as Bitcoin have plummeted, investors worry Coinbase will see lower trading volume and therefore lower fees.

The contagion also spread to other pandemic stocks, such as Zoom and DocuSign, as investors began to doubt the staying power of stay-at-home stocks.

Following the Herd

While investor exuberance drove many of these stocks up last year, 2022 is beginning to paint a different picture.

Investors are worried that rising rates will negatively impact high-growth stocks, because it means it’s more expensive to borrow money. Not only that, but they also may see Netflix’s growth as harbinger of things to come for other pandemic stocks.

The psychology of the market cycle also plays a role—amid these fears, investors have adopted a herd mentality and begun selling their shares in droves.

Where does this data come from?

Source: Google Finance

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How People Around the World Feel About Their Economic Prospects

In many of the world’s largest economies, including the U.S., Germany, and China, optimism around economic prospects sits at an all-time low.

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economic prospects of people around the world

The Briefing

  • Economic prospects are at an all-time low in nine countries, including the U.S., Canada, Germany, Japan, and China
  • China and the U.S. experienced the biggest year-over-year drops, at -8 p.p. and -6 p.p., respectively

How Countries Feel About Their Economic Prospects

Each year, the Edelman Trust Barometer report helps gauge the level of trust people place in various systems of power.

The report is also a useful tool to gauge the general mood in countries around the world—and when it comes to how people in developed economies feel about the near future, there’s a very clear answer: pessimistic. In fact, optimism about respondents’ economic prospects fell in the majority of countries surveyed.

Here’s a full look how many respondents in 28 countries feel they and their families will be doing better over the next five years. Or, put more simply, what percentage of people are optimistic about their economic circumstances?

Country% who are optimisticAll-time low?Change from 2021 (p.p.)
🇯🇵 Japan15%-1
🇫🇷 France18%-1
🇩🇪 Germany22%-2
🇮🇹 Italy27%0
🇳🇱 Netherlands29%-1
🇬🇧 UK30%+2
🇷🇺 Russia31%+1
🇨🇦 Canada34%-1
🇪🇸 Spain36%+1
🇰🇷 South Korea39%+6
🇺🇸 U.S.40%-6
🇦🇺 Australia41%-2
🇮🇪 Ireland42%-1
🇸🇬 Singapore43%-1
🌐 Global51%0
🇲🇾 Malaysia55%0
🇦🇷 Argentina60%-2
🇹🇭 Thailand60%-2
🇨🇳 China64%-8
🇿🇦 South Africa66%-2
🇲🇽 Mexico68%-1
🇧🇷 Brazil73%0
🇸🇦 Saudi Arabia73%0
🇦🇪 UAE78%+6
🇮🇳 India80%0
🇮🇩 Indonesia81%+11
🇨🇴 Colombia83%-1
🇳🇬 Nigeria87%n/a
🇰🇪 Kenya91%-2

Interestingly, nine countries (those with checkmarks above) are polling at all-time lows for economic optimism in survey history.

Whose Glass is Half Empty?

Japanese respondents were the most pessimistic, with only 15% seeing positive economic prospects in the near term. Only 18% of French respondents were economically optimistic.

While most developed economies were slightly more optimistic than Japan and France, all are still well below the global average.

As tensions between China and the U.S. continue to heat up in 2022, there is one thing that can unite citizens in the two countries—a general feeling that economic prospects are souring. As the U.S. heads into midterm elections and China’s 20th National Party Congress takes place, leaders in both countries will surely have the economy on their minds.

Whose Glass is Half Full?

Of course, the mood isn’t all doom and gloom everywhere. The United Arab Emirates saw a 6 percentage point (p.p.) jump in their population’s economic prospects.

Indonesia saw an 11 p.p. increase, and in big developing economies like Brazil and India, the general level of optimism is still quite high.

In some ways, it’s no surprise that people in developing economies are more optimistic about their economic prospects. Living standards are generally rising in many of these countries, and more opportunities open up as the economy grows. Even in the most pessimistic African country surveyed, South Africa, the majority of people still see improving circumstances in their near future. In Kenya and Nigeria, an overwhelming majority are optimistic.

Diverging Outcomes

One major prediction that experts agreed on for the year ahead is that economic outcomes will begin to diverge between countries with differing levels of vaccine access.

While this doesn’t seem to have affected attitudes towards economic optimism yet, it remains to be seen how this will play out as the year progresses.

Where does this data come from?

Source: 2022 Edelman Trust Barometer

Data notes: This data is derived from Edelman’s annual Trust Barometer survey, which includes 30,000+ respondents in countries around the world.

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