Blank Check Companies a Boon for Big Banks
Underwriting SPACs Help Big Banks Weather Pandemic Circumstances
A record-breaking amount of blank check companies have been created recently as startups in the electric vehicle, cannabis, and technology spaces rush to capitalize on investor enthusiasm. While the SPAC industry used to be dominated by a small group of firms, large banks vied for dominance in the sphere in 2020, including Credit Suisse (CS), Citigroup (C), Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan Chase (JPM), and Bank of America (BAC). The interest from some of Wall Street’s largest banks signals just how lucrative underwriting blank check companies has become.
Analysts say big banks are using blank check underwriting to stay profitable as interest rates remain low and economic sluggishness has forced them to put billions of dollars aside for potential loan losses. Typically, banks help SPACs find buyers for shares and backstop the company’s stock price. The banks are then able to charge fees—typically 2% of the money raised in the IPO and 3.5% when the merger is complete. While traditional IPOs can sometimes be more lucrative for banks, SPAC deals also bring the possibility of advising fees.
How Does an SPAC Work?
Blank check companies, also known as special-purpose acquisition companies, or SPACs, are public firms. They launch an initial public offering, or an IPO, and then use money from that IPO to merge with another company.
Usually, that merger happens within the first few years of the company’s existence. The merged company then gets to assume the SPAC’s position on a stock exchange. That way, hot startups in industries like electric vehicles and cannabis can access public markets through their SPACs. Individual investors can buy stock in most SPACs.
SPACs Raised $82 Billion in 2020
Blank check companies listed in the United States raised $82 billion last year. For comparison, that is more than six times what blank check companies raised in 2019. Analysts say it is also more than the total amount SPACs have ever raised in the past.
William Ackman’s Pershing Square Tontine Holdings (PSTH), which raised $4 billion in July 2020, was the largest blank check IPO to date. Firms Citigroup, UBS Group AG (UBS), and Jefferies Financial Group (JEF) were the lead underwriters on the deal. Banks as well as individual investors will be eager to see if the rise of SPACs continues in 2021.
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
SOSS21010601
All your finances.
All in one app.
App Store rating
