March 26, 2021

Private Equity: SPACs Provide Competition for Tech Deals

There are a whole lot of SPACs sitting on a whole lot of money that they need to put to work. According to this PitchBook article, that means that private equity sponsors should expect to face competition from these entities in one of their favorite hunting grounds – tech sector deals:

More and more SPACs are also looking for tech targets—potentially a bigger concern for private equity.  “PE [firms] might lose out to the public markets for a few IPOs, but the big brand-name [listings] were probably going to happen anyway. The real threat is SPACs,” said Dan Malven, managing director of VC firm 4490 Ventures. “[A blank-check company] is almost like a single-purpose private equity firm. They’re targeting the same tier of companies, and they may end up taking over a lot of [PE’s] territory.”

SPACs have taken off in the US over the past year as an easier alternative to traditional listings. Some 232 blank check companies raised nearly $75 billion so far this year, according to data from SPACInsider. And investors in other countries, like the UK, are looking to follow suit.

Many of these vehicles are setting their sights on the venture ecosystem. Among the recent deals announced is auto insurance company Metromile’s reverse merger with Insu Acquisition Corp. II. Even in Europe’s relatively nascent SPAC market, VC-backed companies are looking to this exit route as a preferred source of liquidity. Online car platform Cazoo, for example, is said to be in discussions with Ajax I, a SPAC set up by hedge fund manager Daniel Och, despite earlier reports that the company was leaning toward an IPO.

Of course, PE sponsors have always been a pretty adaptable bunch, and the article notes that one way they’ve responded to the competitive threat posed by SPACs by tapping into the SPAC craze themselves. The article cites two specific examples of PE backed SPAC deals –  Apollo’s 2020 launch of Spartan Energy Acquisition Corp. & its subsequent merger with VC-backed electric vehicle maker Fisker, and Learn Capital-backed Nerdy’s January 2021 agreement to go public through a SPAC merger.

John Jenkins