2020 has been the year of the special purpose acquisition company (SPAC) and the trend has shown no signs of slowing down.
For our readers who are not familiar with these types of businesses, a SPAC is a company that does not have commercial operations and is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.
As of early August, more than 50 SPACs have been formed in the US so far this year and have raised more than $20 billion. From electric vehicles to gambling, SPACs have infiltrated several major industries and we will monitor how the trend continues into the end of the year.
We expect the SPAC trend to become more significant as companies look for alternative avenues for raising capital and going public. Today, we want to highlight 5 industries that have benefited from the SPAC trend.
- Healthcare – Chamath Palihapitiya is considered to be one of the smartest investors in Silicon Valley and has identified Clover Health as its next SPAC target. Clover Health is a Medicare insurance start-up that is backed by Alphabet (GOOG) and it will go public via a merger with Social Capital Hedosophia Holdings Corp. III. The deal values Clover at $3.7 billion and we will monitor how the company is able to execute.
- Electric Vehicles – Although Nikola (NKLA) is one of the best know electric vehicle SPACs on the market, it does not have the best reputation associated with it. Last month, Hindenberg released a short report and pretty much called the business a scam. A few days after the report was published, the CEO of Nikola stepped down and this is a story that we are following.
- Gambling – Earlier this year, Golden Nugget Online Gaming went public through a reverse merger with Landcadia Holdings (LCA). The SPAC is a spinoff of the Golden Nugget brick-and-mortar casino business and we expect to see additional gambling SPACs go public in the near future.
- Cannabis – Last year, Merida Merger Corp. I (MCMJU) raise more than $100 million for a cannabis-focused SPAC. The cannabis fund has several SPACs on file to IPO and we will monitor how the management team is able to bring these deals to market.
- Space Travel – Backed by Sir Richard Branson, Virgin Galactic Holdings (SPCE) is one of the best-known SPACs on the market. The company is highly focused on the commercial space travel market and is an opportunity to be aware of.