January 11, 2021

Peak SPAC: LMAO! Looks Like I Made a Bad Call. . .

Remember when I blogged that the Playboy Enterprises deal was “peak SPAC”? Upon further review, I think I made a bad call. On Friday, Bloomberg’s Eric Balchunas tweeted about a Form S-1 filing by a SPAC called “LMF Acquisition Opportunities, Inc,” which I think beats Playboy pretty handily.  What makes this deal stand out? Well, the cover page of the prospectus discloses that the Nasdaq trading symbol for the company’s Class A Common Stock is “LMAO.” A quick perusal of the filing indicates that the company is looking to raise $75 million. I guess if it does, then it will be in a position to LMAO all the way to the bank. If that isn’t peak SPAC, I don’t know what is.

While we’re on the topic of “peak SPAC,” a recent WSJ opinion piece suggests that the “SPAC bubble” may soon burst – and that this would be a good thing for investors.  This excerpt explains why:

We studied SPACs that completed mergers between January 2019 and June 2020 and found that, on average, they lost 12% of their value within six months following the merger, while the Nasdaq rose roughly 30%. Even with these drops in share price, the 20% that the sponsor gets essentially for free provides a nice return on its investment. The sponsors of these SPACs enjoyed a return on investment of more than 500% as of the end of 2020.

LMAO indeed!

IPOs: The Outlook for 2021

Baker McKenzie recently issued its 2020 IPO Report, which discusses the current year’s activity & the trends to watch for in 2021. Peak SPAC or not, it looks like SPAC deals will continue to feature prominently in the mix – at until things return to a more normal environment:

In looking at what 2021 holds for the IPO markets, the economic outlook will largely hinge on the distribution of a vaccine to COVID-19, heralding the official beginning of a return to “normalcy” and the full return of consumer confidence. As businesses successfully re-engineer their financial statements to an economic environment of recovery, we can expect to see capital raises for businesses to start expanding and investing in their growth and development, leading to a ripple effect of economic activity.

Until then, we will likely continue to see a proliferation of Special Purpose Acquisition Companies (SPACs) as well as businesses continuing to access the capital markets in conventional ways with going public, given that there remains a huge amount of dry powder in the private equity markets.

SPACs have historically been met with skepticism by the market and investors alike, but improved regulatory requirements and a number of recent high profile and successful acquisitions have helped to build the interest and momentum behind one of this year’s biggest trends. While these regulatory requirements vary across geographies, the more risk-averse framework in the US is one of the primary reasons that almost all SPAC activity takes place in New York.

The report notes that SPAC deals drove a huge increase in US domestic IPO activity during 2020, and points out that continuing tensions between the U.S. and China and the recent enactment of the Holding Foreign Companies Accountable Act has led to a number of jurisdictions, Hong Kong and London in particular, planning and introducing regulatory changes on stock exchanges in an effort to lure China-based listings away from the U.S. markets.

Tomorrow’s Webcast: “Streamlined MD&A and Financial Disclosures – Early Considerations”

Tune in tomorrow for the webcast – “Streamlined MD&A and Financial Disclosures: Early Considerations” – to hear our own Dave Lynn of Morrison & Foerster, Bryan Brown of Jones Day, Lyuba Goltser of Weil, Gotshal & Manges and John Newell of Goodwin Procter discuss the newly amended MD&A and financial disclosure rules and the benefits and drawbacks of voluntary early compliance.

John Jenkins