Richard Branson has certainly caught the SPAC bug. Almost as soon as his “blank cheque” company VG Acquisition Corp [VGAC] announced it was taking DNA-testing firm 23andMe public, he formed a third special purpose acquisition company (SPAC).
Virgin Group Acquisition II [VGACT.RC] aims to raise $330m in order to acquire a company aligned to Virgin Group’s existing businesses, but has yet to launch its IPO.
Virgin Group Acquisition Corp III will sell 5 million units of shares and warrants at $10 each in the hopes of raising a cool $500m on the New York Stock Exchange, as reported by Reuters. At that size, the SPAC could have a market value of $625m, according to Nasdaq.
The newly-formed company said in its filing that it will look for a merger target operating in one of Virgin Group’s main business areas, which include travel and leisure, and financial services.
Amount that Virgin Group Acquisition II aims to raise
As with Branson’s other forays into the world of SPACs, number three will be led by Josh Bayliss, CEO of Virgin Group and Evan Lovell, Chief Investment Officer at Virgin Group.
How are Branson’s VGAC SPACs doing?
Branson has already raised millions using SPACs, but how has the original VGAC fared since announcing its merger with 23andMe?
Since the deal was announced in early February, VGAC’s share price has declined more than 15%. InvestorPlace’s Matt McCall suggests that there could be two reasons investors have been selling the stock. One is that they simply don’t like 23andMe as a merger target, and the other that they think VGAC is “paying top dollar for a declining business”. For McCall, this view misses 23andMe’s future potential.
“In short, the company has many ways to drive growth in the coming years. Its 2024 projection of $400 million in revenue looks more than attainable. Yet, don’t think that’s where growth will hit a wall,” writes Matt McCall and the InvestorPlace research staff.
“In short, the company has many ways to drive growth in the coming years. Its 2024 projection of $400 million in revenue looks more than attainable. Yet, don’t think that’s where growth will hit a wall” - Matt McCall
Where is the SPAC hype heading?
SPACs, also known as “blank cheque companies”, raise money from investors for the purpose of acquiring an existing company. As reported by the Financial Times, 2021 has already seen the launch of 235 SPACs, raising $72bn in the process (correct at time of writing). At this rate, 2020’s record of 244 SPACs and $78bn raised will be short-lived.
Governments are taking notice of this craze. In the UK, a government-backed review has made sweeping recommendations to avoid the City of London getting left behind.
"SPACs is the topic de jour," one person close to the review told Financial News. "It wasn’t at the top of the list when we started but in the period of the review that SPAC wave has only gone up in terms of its interest. It has now crossed over the Atlantic, a few in Amsterdam, then in Frankfurt and none in London."
Amount raised by 1,415 IPOs in 2020
The noise surrounding SPACs fits in with the wider boom in IPOs. According to PwC’s Global IPO Watch Q4 2020, there were a total of 1,415 IPOs in 2020, raising $331.3bn. That’s a sharp jump from the 1040 IPOs in the same period in 2019, which raised $199.2bn. On our own thematic ETF screener, the IPO investment theme is up over 5% in the past week. The Renaissance IPO ETF [IPO], which tracks newly listed US companies, has surged 196.03% in the 12 months to 15 March’s close.
Branson’s third SPAC is entering a crowded market, with investors almost spoilt for choice. Big IPOs coming up this year include Deliveroo in the UK with an expected £10bn valuation, and fintech Stripe in the US with an expected $100bn market cap.
While there’s certainly a degree of hype around companies going public right now, there’s also opportunity for investors who can back the right ones.