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Does SoFi’s SPAC debut signal the start of another blank-check boom?

Short for Social Finance Inc., SoFi (NASDAQ: SOFI) went public on Tuesday by merging with special purpose acquisition company (SPAC) Social Capital Hedosophia Corp V. In its market debut, SoFi shares closed up over 12% at $22.65 as investors flocked to the stock. Previously, SoFi was privately valued at $5.7 billion.  

This article was originally written by MyWallSt. Read more market-beating insights from the MyWallSt team here.

SPACs, also known as blank-check companies, raise funds through a shell company with the purpose of buying an already operational business. Social Capital Hedosophia Corp V is run by venture capital investor Chamath Palihapitiya. 

For more on what blank-check companies are, read our blog “What Is A SPAC?”

 

What is SoFi? 

SoFi is an American digital personal finance company. The firm was founded in 2011 with a focus on student loan refinancing for millennials. Now, SoFi provides its users with stock and cryptocurrency trading, personal and mortgage loans, and wealth management services. The San Francisco-based company has attracted funding from well-known investors including, Peter Thiel, Silver Lake, and SoftBank.

SoFi stands out as it is one of the only companies to offer this many financial services. CEO Anthony Noto stated: 

“We’re the only one stop shop to do all your financial service needs at one platform.” adding “Many people talked about broadening the suite of products but only SoFi has done it on one mobile platform.”

If you want to read more about SoFi, read our recent article: Can I Invest In SoFi Stock Today?

 

Are we in another SPAC boom? 

There are plenty of SPAC mergers in the pipeline. In May, Bright Machines Inc, a digital manufacturing startup, said it will be using a SPAC to make its market debut. The company is valued at a staggering $1.1 billion, proving that there is still interest in this method. Bird Rides Inc is also planning its SPAC merger with a $2.3 billion valuation. However, the largest SPAC deal of them all is Southeast Asia’s ride-hailing giant Grab Holdings Inc. The tech company is currently worth an eye-popping $39.6 billion.

According to Refinitiv, companies across the globe have raised around $248 billion, a record high, through IPOs this year including the listings of SPACs. The U.S. has had the most IPOs this year, raising roughly $130 billion, of which $88.2 billion were SPAC deals. Across the waters, Chinese and UK firms raised $39.1 billion in IPOs and $12 billion in blank-check mergers. 

 

Why are SPAC deals declining? 

Black-check companies became increasingly popular over the past year. However, JP Morgan stated that the SPAC boom may have already peaked. The firm explained that the decline in SPACs may be due to a fall in retail traders investing in them along with increased regulations from the U.S. Securities and Exchange Commission. Many believe that investigations into conflicts of interest concerning SPAC deals could be soon approaching, which may make this method seem less attractive. 

The speed of vaccine rollouts and financial benefits coming to an end could also cause the SPAC boom to slow down — and it may have already happened. In April, global SPAC proceeds fell to $3.7 billion from March highs of $34.5 billion, the lowest in 10 months. 

Many experts expect SPAC IPO activity to decrease after it exploded in Q1. However, SoFi’s impressive result in its SPAC debut was noted by investors. It will be interesting to see how this trend unfolds and if the blank-check boom can continue as the economy recovers and regulators crack down on these mergers. 

 

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