The term, special purpose acquisition company (SPAC) returned to the public eye in July 2019 when Virgin Galactic announced that it would be going public while bypassing the traditional IPO route. Virgin Galactic was far from the first to merge with a SPAC as a means to go public. In 1993, investment banker David Nussbaum and lawyer David Miller paved the way for SPACs by co-founding the SPAC-focused investment bank EarlyBirdCapital Inc.
In 1993, SPACs were a novel idea. Today, SPAC founders include everyone from baseball legend Alex Rodriguez to Shake Shack founder Danny Meyers. Year over year growth for SPAC’s has been extraordinary. Last year there were five times as many SPACs as the previous year. So far in 2021 there have already been more SPACs created than there were all of last year. They’ve raised nearly $75 billion in 2021 and have accounted for more than 70% of all IPOs, up from 20% two years ago.
SPACs have two years to strike a deal and generally speaking will use funds from public investors to make an acquisition. Typically, SPACs acquire a private company. Not long after, the SPAC will merge with the company and take its name while becoming publicly traded in the process. This route of taking a company public has become extremely popular in the restaurant space. Many SPACs target restaurants, restaurant technology and hospitality in general. SPACs that are making headlines today in these sectors include Acquisition Corp run by former Barteca exec Andy Pforzheimer and former Jamba CEO Dave Pace. USHG Acquisition Corp backed by Danny Meyer is also another example.
The spike in interest in this space can be attributed to the current state of the restaurant industry. Restaurants are finally starting to bounce back from the coronavirus as in-person dining continues to return and the economy improves. During this time, restaurants had to operate with their backs against the wall, figuring out innovative ways to survive. The innovations restaurants made will continue to last, potentially leading to higher levels of profitability. Interest in the restaurant space stems far beyond the view of only SPACs. Strategic investors and private equity groups have also shown their interest in this sector, most notably Apollo Global Management and Roark Capital.
SPACs have become synonymous with the IPO landscape in 2021 and could eventually become the preferred route of bringing a company public. At this point in time, one can only speculate. One thing we can say with certainty is that Marqii will continue to monitor this trend and position ourselves and our clients in the best possible situation for the future.