The SPAC Boom Has Some Downsides

The SPAC Boom Has Some Downsides

DealBook Business and PolicyDealBook NewsletterThe Issues With SPACsThe blank-check boom shows no signs of slowing, but there are reasons to be wary.By Andrew Ross Sorkin, Jason Karaian, Michael J. de la Merced, Lauren Hirsch and Ephrat LivniFeb. 10, 2021, 7:33 a.m. ETImageImageColin Kaepernick: former pro quarterback, social activist and ... SPAC executive?Credit...Elijah Nouvelage/ReutersWhat could go wrong?There's a new saying making the rounds on Wall Street, Andrew writes in his latest column. It's not in good taste, but it captures the new trend transforming the financial world: “I know more people who have a SPAC than have Covid,” financiers keep telling Andrew. (We warned you.)The blank-check company boom shows no signs of slowing, with SPACs — or special purpose acquisition companies — raising nearly $26 billion in January, a monthly record in a red-hot market. These listed shell companies exist solely to find a private company to buy and take public. SPACs typically acquire a target around five times their size: With more than 300 such funds sitting on some $100 billion in cash currently seeking acquisitions, that implies financial firepower of $500 billion.Image“Every friend is launching a SPAC,” the billionaire fund manager Bill Ackman told Andrew. “It's like, ‘Oh, yeah,