U.S. Equity Linked Strategies: SPAC Metamorphosis

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Equity Research

2 November 2020

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U.S. Equity Linked Strategies

SPAC Metamorphosis

The SPAC market is humming with activity and has reached a critical phase in its

evolution and maturation as a viable alternative for companies deciding to go public

versus an IPO or Direct Listing, a process accelerated by Covid-19. It is having a record

year in issuance, announced and closed acquisitions, active pipeline, and broad

investor interest. In this report, we analyze their returns, drivers, and evolution to the

current stage. SPACs have exhibited high average returns, wide dispersion, and

positive skew, patterns which could make them a candidate for systematic investing.

SPAC returns through acquisition closing have been higher than the subsequent

returns of the acquired companies. Since 2015, SPACs have provided healthy average

annualized returns of 16.2% from their IPO to the close of an acquisition. Accounting for

only closed deals (~80-90% historically), returns look even better at 17.5%. The

dispersion of SPAC returns is wide and they exhibit a strong positive skew, patterns that

suggest that investors may consider a systematic approach to investing in SPACs. We

also find that larger SPACs and ones with fewer warrants (suggesting less dilution and

greater sponsor credibility) have fared better. It is sobering to know though that the

forward 12-month returns of the SPAC acquired companies have lagged both on an

absolute basis and relative to IPOs and the Russell 2000.

A host of factors have coalesced to aid their path to broader acceptance. Structural

adjustments to better align the interests of SPAC sponsors and investors, increased

participation of seasoned and high profile sponsors, a broader and diversified investor

base (long only and hedge funds), and high profile companies choosing the SPAC route

to go public (like DraftKings and Nikola) are among the key drivers of the tremendous

growth of SPACs this year.

The landscape of SPACs has shifted meaningfully. There has been a perceptible shift in

SPAC capital deployment away from traditional industries toward higher growth

companies, disruptive tech, and companies with less operating history. In addition, SPAC

IPO sizes have increased and so have their acquisition sizes. We also see a visible trend

toward fewer warrants per share. Most importantly, the velocity of de-SPACing has

increased as can be seen in the declining time to acquisition announcement and this

allows for potentially improved returns as investors pick up time value.

Sprinklings of froth. In the midst of broadly positive developments, we are seeing

sprinklings of frothiness. For example, there has been a sharp increase in the “pop” post

announcement of SPAC acquisitions this year, yet there have also been some high-profile

pullbacks recently (e.g., PCPL and FTAC). Also, with significant capital having been raised,

a robust pipeline of SPAC IPOs in the wings, and some SPACs approaching their

acquisition deadlines, there is risk of demand for acquisitions pushing up prices,

especially for companies with less operating history.

MACRO STRATEGY

U.S. Equity Linked Strategies

Venu Krishna, CFA

+1 212 526 7328

[email protected]

BCI, US

Elias Krauklis

+1 212 526 9376

[email protected]

BCI, US

Barclays | U.S. Equity Linked Strategies

2 November 2020 2

SPACS – Transitioning to broader acceptance

The companies in this report are not under coverage by Barclays Research. Information about

these companies is being provided for information purposes only and is not an investment

recommendation by Barclays Research.

The burst in SPAC (Special Purpose Acquisition Companies) issuance and activity this year

has not only pulled them to the forefront from the shadows but it is also garnering significant

interest from a broad base of institutional investors (see SPACing in the time of social

distancing, 9/18/20). Though the SPAC market has been around for three decades, it is only

now that it appears to be transitioning to broader acceptance. Yet for investors there is scant

analysis on their returns. Thus we dig deeper into the returns history, drivers, and the

evolution of SPACs in this report.

While SPAC issuance picked up pace over the last two years, the onset of Covid-19 has been

a significant catalyst in boosting SPAC issuance as companies sought alternative avenues to

go public following disruptions to their IPO plans. In essence, SPACs are an efficient

alternative route for private companies to go public compared to an IPO or Direct Listing.

Speed of access, greater control and visibility on pricing, and simpler disclosure requirements

are some of reasons private companies are finding going public via the SPAC route attractive,

especially versus a traditional IPO.

FIGURE 1

Why private companies are going the SPAC route

Source: Barclays Research

SPACs raise capital via an IPO with the express mandate to acquire a private company within

24 months, subject to certain expectations. Investors in the SPAC IPO are essentially investing

based on the capability of the SPAC sponsors (usually seasoned executives with industry

expertise who often partner with financial backers) to execute on an acquisition. Prior to an

acquisition being completed, investors do have the option to redeem their initial investment,

which is held in a trust.

Figure 2 below shows the structure and timeline of a typical SPAC. A typical SPAC unit (sold

at $10/unit) consists of a stock and a fractional warrant (between 0.20 to 1). At a very broad

level, the SPAC unit is a bond plus a warrant till an acquisition is announced. The bond-like

nature comes from the fact that the SPAC IPO proceeds are invested in T-bills (via a trust)

that can be redeemed by investors prior to an acquisition for their proportional share of the

trust’s assets, rendering the bond portion effectively risk-free. The SPAC warrant has no

underlying until such time that an acquisition is announced and completed. Given this

structure, SPACs typically trade like a bond until an acquisition is announced and like a stock

after the acquisition is completed. In other words, SPACs provide downside protection to

investors until an acquisition is completed after which it trades like a stock. As we discuss

later in the returns section, the SPAC structure has interesting implications for returns.

∙ —Faster time to market vs. traditional IPO (4-6 months vs ~18 months) —

∙ Greater execution and pricing certainty

∙Ability to market projections

∙Price discovery done confidentially; agreed upfront

�∙ Potential to monetize larger stakes

�∙ Retain ability to participate in future story upside

�∙ Partner with proven operator to grow business

∙ Provides capital flexibility

https://live.barcap.com/go/publications/link?contentPubID=FC2549206&restriction=DEBT

https://live.barcap.com/go/publications/link?contentPubID=FC2549206&restriction=DEBT


2 November 2020 3

SPACs typically make acquisitions that are 2-5x the size of the SPAC IPO amount. This is

facilitated by bringing in PIPE investors (private investments in public equity) prior to the

acquisition. SPAC sponsors typically receive 20% of the SPAC shares and they purchase

private warrants (with terms in line with the public warrants). The sponsors fund the offering

expenses and working capital (i.e., their at-risk capital). In Figure 3 below, we show the key

terms of a typical SPAC.

FIGURE 2

Structure and timeline of a typical SPAC

1. Permitted timeline could be extended with shareholder approval of only the holders of Class A common stock, ordinary resolution and with the consent of the

exchange, if required.

2. If shareholder approval is not obtained, SPAC may look to amend acquisition terms, seek timeline extension to identify another target or in final instance liquidate

vehicle.

3. Acquisition close subject to cash on hand following shareholder redemptions, or alternative sources of cash are available.



2 November 2020 4

FIGURE 3

Summary of Key Terms of a typical SPAC



2 November 2020 5

In Figure 4 below we show an illustrative example of the term sheet of a hypothetical $250

million SPAC along with the breakdown of components of the at-risk capital that the SPAC

sponsors fund and is used toward underwriting expenses, offering expenses, and working

capital.

FIGURE 4

Illustrative Term Sheet and At-Risk Capital for a $250 million SPAC

1: Assumes ~2% of the illustrative base deal size of $250mm + working capital to cover operations and other transaction costs.

2: Underwriting fee is based on $25mm base deal size


A confluence of factors has led to the growth, evolution, and broader acceptance of the

SPACs market. These include:

More shareholder-friendly features to better align the interests of sponsors and

shareholders: Historically, there has been concern regarding excessive and lop-sided

compensation for the SPAC sponsors and a misalignment of sponsor incentives vs

investors

Better known and prominent sponsors: Prominent SPAC sponsors include, Chamath

Palihapitiya (VC), Kevin Hartz (Early-stage Silicon Valley investor), Bill Ackman

(Hedge Fund), Billy Beane (Oakland Athletics executive), and Paul Ryan (Ex House

Speaker) to name a few

Diverse and broader institution investor participation: long only and hedge funds


2 November 2020 6

High profile companies picking the SPAC route to go public: Examples include Nikola

(NKLA), Virgin Galactic (SPCE), DraftKings (DKNG), United Wholesale Mortgage

(recently announced merger with SPAC Gores Holdings IV Inc.)

Larger SPAC IPOs: such as Bill Ackman’s recent $4 billion SPAC (Pershing Square

Tontine Holdings, PSTH.U), the largest to date

Yet the rapid growth in the SPAC market raises concerns about investor exuberance and

saturation. With typical SPAC acquisitions being significantly larger than the amount raised

in the SPAC IPO (in the 2-5x range), there is the risk that demand for acquisition targets bids

up prices. On the flip side, it is worth pointing out that larger acquisition sizes lead to less

dilution from SPAC sponsor’s unfunded promote equity stake (see illustration below).

FIGURE 5

Illustrative example of impact from SPAC founder dilution relative to acquisition sizes

(multiples of SPAC Trust Account): Larger acquisitions result in less founder dilution

Illustration assumes $250mm SPAC public equity (funded), ~$63mm in sponsor promote equity (unfunded; 20% of

SPAC), and acquisition asset equity valuation multiples of 2x to 6x of SPAC funded equity


The trajectory of SPAC issuance

As mentioned earlier, the onset of Convid-19 muddled the IPO plans of private companies

and the SPAC market got a boost as it got increasingly tapped as an alternative vehicle to go

public.

Since 2000 there have been essentially two waves of SPAC issuance. The first wave was from

2000 to 2007, with significant pickup in issuance from 2005 to 2007. Following the GFC in

2008, SPAC issuance came practically to a standstill until 2012. The second wave of SPAC

issuance started in 2013 and has picked up pace significantly since 2019.

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IPO 2.0x 3.0x 4.0x 5.0x 6.0x

Public Investors Founder Promote Seller Equity

Pro Forma Ownership


2 November 2020 7

FIGURE 6

SPAC issuance has accelerated significantly in 2020

Source: Barclays Research, SPAC Research, Bloomberg

YTD, $62.1 billion has been raised in the SPAC market through 169 transactions (through

October 23). In addition, YTD 39 acquisitions by SPACs have been completed while 49

acquisitions have been announced and are in the de-SPACing process. Since 2014 there have

been a total of 119 SPACs that de-SPACed (acquired a company or returned money to

investors) with 39 in 2020. In comparison, there are currently ~180 active SPACs that have

not yet acquired a company.

FIGURE 7

SPAC market activity has been strong on multiple fronts

Source: Barclays Research, SPAC Research

Note: Completed SPACs refers to SPACs which have completed an acquisition in 2020

Tracking and analysing SPAC performance

The life-cycle of a SPAC: Key Insights

Before delving into the historical performance of SPACs, we thought it would be helpful to

understand the life cycle of a typical SPAC to draw generalized insights about SPACs. We use

a hypothetical example of a target company (TARGET.EX) that went public via an acquisition

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$9Bn $10.9Bn

$62.1Bn

$12.7Bn

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Trust Account Value ($Bil) Number (RHS)


2 November 2020 8

by the SPAC (SPAC.EX). The below table shows the key dates and events from the SPAC.EX’s

IPO to its acquisition of TARGET.EX.

The timeline of the SPAC life-cycle can be summarized as follows:

SPAC.EX IPO’ed with 28.75mm units (23mm publically available, 5.75mm as the founders

promote) which consisted of one share and one warrant (IPO Date)

~1 month post-SPAC IPO, the warrant and stocks began to trade publically, separate from

the unit

22 months post-IPO, SPAC.EX announced its plan to acquire TARGET.EX at a Pro Forma

Equity Value of $4.0Bn (Announcement Date)

25 months post-IPO, SPAC.EX closed its acquisition of TARGET.EX, which began trading

publically (Closing Date)

FIGURE 8

Key Dates for the acquisition of TARGET by the SPAC


Now that we have established the timeline for the acquisition of TARGET.EX by SPAC.EX, we

can look at how the hypothetical SPAC unit, stock, and warrant traded to allow us to make

generalized observations on how typical SPACs trade. Figure 9 shows the performance of the

SPAC.EX unit and its stock from its original IPO date to its acquisition announcement of

TARGET.EX (~22 months later), the close of the acquisition ( 3 months from announcement),

and the subsequent performance of the TARGET.EX stock. In Figure 10, we also show the

performance of the warrants over this time frame.

Key Dates Timeline

IPO Date0 Months

from IPO

Announcement Date22 Months

from IPO

Acqusition Closing Date25 Month

From IPO

Timeline of SPAC.EX acquiring TARGET.EX

Trust Account Size: $230mm

Publically Traded Assets: SPAC.EX unit which consists of one SPAC.EX share and SPAC.EX warrant

Investors: 23mm SPAC.EX units for public investors, 5.75mm SPAC.EX units for founder's promote

Additional Details: SPAC.EX Unit IPOs @$10 with a 2Yr time window

Warrant and shares trade separately 28 days after IPO

Acquired Company (TARGET.EX) Size: Equity Value: $4,029mm, Enterprise Value: $3,324mn

Publically Traded Assets: SPAC.EX Unit, SPAC.EX stock, and SPAC.EX warrant

Investors: 23mm SPAC.EX units for public investors, 5.75mm SPAC.EX units for founder's promote

Additional Details: SPAC.EX announces details to purchase TARGET.EX at a ProForma Equity Value of

$4.0Bn

Acquired Company (TARGET.EX) Size: Equity Value: $4,029mm, Enterprise Value: $3,324mn

Publically Traded Assets: SPAC.EX shares/warrants convert to TARGET.EX shares/warrants, SPAC.EX

unit no longer trades

Investors: Pro Forma Share Count: 23mm common shares, 6.6mm founders shares, 52.5 PIPE investors

shares, 320.7mm TARGET.EX seller's shares

Additional Details: Deal is completed and SPAC.EX becomes TARGET.EX

Key Details


2 November 2020 9

FIGURE 9

SPACs tend to see a positive “pop” on acquisition

announcement, volatility around the close of the deal, and

weak performance for the acquired company afterwards

FIGURE 10

SPAC warrants tend to see higher returns than the stock or

unit, but also have higher risk

Source: Barclays Research, Bloomberg Source: Barclays Research, Bloomberg

As noted earlier, when a typical SPAC raises capital via an IPO, it is via a unit structure which

is composed of a stock and warrants (0.2 to 1 per share). Typically, within 52 days of the

SPAC IPO, the stock and warrant trade independently. This allows investors to invest directly

in the SPAC stock or the warrant (higher risk) depending on their risk profile.

The key insights we can glean from the life cycle of a typical SPAC, and generalizations we

can draw include:

1) There is typically a “bump” when a SPAC announces the company it intends to

acquire. We find that on average SPACs see a return of 3.5% on the day they announce

their intent to acquire a company1. In general, this return is consistently positive, with

over 90% of SPACs seeing non-negative returns on their acquisition announcement

dates.

2) SPAC unit returns tend to remain strong between the announcement “bump” and the

closing of the acquisition. Although the day of announcement for SPACs provides

consistent strong returns, most SPACs tend to continue to perform well up until the

acquisition is completed. In general, we find that ~45% of a SPAC returns occur from IPO

to the date of announcement, leaving additional return opportunities for investors who

want to enter SPAC positions after the target company is announced.

3) SPAC returns tend to be volatile on the day of the acquisition’s closing. Unlike the

typical pop seen when the acquisition is announced, we find that the average return for

the SPAC Unit on the day of acquisition is -1.0% with a standard deviation of 14%. In

general, around 50% of SPACs had positive returns on the closing date of the acquisition,

while 50% had negative returns.

4) Companies acquired by SPACs tend to underperform following the acquisition. Our

analysis shows that in general, companies acquired by SPACs underperform in the

subsequent year. We find that the average returns for SPAC acquired companies in the

six months following the acquisition is -8.3%, although these returns are heavily

dependent on the size of the SPAC, as we will show later.

1 Note that this number only includes companies that have completed the acquisition process

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Dec-19 Mar-20 Jun-20 Sep-20

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Announcement"Pop"

Acqusition Close

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SPAC.EX Warrant


2 November 2020 10

5) SPAC warrant returns tend to be much higher but more volatile. As we saw in Figure

10 the SPAC warrant has much higher returns than the stock or unit. This is common for

SPAC warrants, although due to the inherit leverage in the warrant the risk is much

higher as well.

Digging deeper into SPAC performance

To better understand the returns over the SPAC lifecycle we break down the returns into two

separate phases: 1) the returns of the SPAC from its IPO to the closing of the acquisition

(hereon referred to as the “SPAC Return”), and 2) the returns of the SPAC acquired company

following the completion of the acquisition (hereon referred to as the “de-SPACed company

return”).

Although on average SPAC returns follow the pattern shown in Figure 9, we find that there is

a wide dispersion of returns across SPACs. Figure 11 shows the returns distribution from

SPAC IPO to the acquisition closing has a strong positive skew with a fairly large number of

SPACs delivering annualized returns exceeding 25%. This results in much stronger average

annualized returns for SPACs (17.5%) compared to median returns (5.3%).

It may also appear counter-intuitive that SPACs can have negative returns, but once a SPAC

has made an acquisition announcement it takes on equity properties. After the acquisition is

completed, it transitions fully to a stock and reflects the valuation and prospects of the

acquired company. Note also that by the acquisition closing date the redemption option

would also have expired since the redemption vote typically coincides with the shareholder

vote prior to the acquisition. Thus by close of an acquisition, it is not uncommon for SPAC

prices to dip below their initial $10.

FIGURE 11

SPACs have historically returned ~17% annualized from IPO to acquisition closing, but

there is a strong positive skew in the return distribution resulting in much lower median

returns of ~5% annualized

Source: Barclays Research, Bloomberg, Refinitiv, SPAC Research

Note: Completed SPACs refers to SPACs that have completed an acquisition

It should also be noted that a fair amount of SPACs (historically 10-20% per year) never

manage to acquire a company and eventually return capital to shareholders after liquidating

the trust (that is invested in T-bills). Adjusting for such non-completion of acquisitions, the

average annualized and median SPAC returns fall to 16.2% and 4.9%, respectively.

In recent years as the SPAC market has gained in prominence there have been fewer trust

liquidations for lack of acquisition completions. This is borne out by the fact that less than

10% of SPACs that IPOed in 2018 failed to find a target (4 out of 46) with most of those

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Annualized Return from IPO to Acqusition closing

SPAC Return DistributionAvg Annualized Ret: 17.5%

Median Annualized Ret: 5.3%

% of completed SPACs


2 November 2020 11

SPACs (3 out of 4) are still active. It should be noted that most of the recent SPACs that have

failed to do an acquisition have been concentrated in the Energy space, indicating that a lack

of acquisition for SPACs may have more to do with their target industry than market

dynamics.

With SPACs having delivered average annualized returns of 16.2% since 2015 (including

SPACs with no acquisitions) we next turn to examining the consistency of these returns.

Figure 12 shows that while there have been variations in yearly average SPAC returns, they

have been positive over this time frame. However, given the wider dispersion of returns and

a positive skew, the yearly median returns are lower. While there are no direct comps to

compare SPAC returns, for illustrative purpose we use the Russell 2000 index for some

context. We find that in years with strong equity returns (2017) SPACs tend to underperform

the R2000 modestly, while in years with weak equity returns (2020) SPACs outperformed.

FIGURE 12

SPACs have seen consistently delivered positive average

yearly returns since 2016 …

FIGURE 13

… though median yearly returns, while being positive, have

been lower due to the wide dispersion of returns

Source: Barclays Research, Bloomberg, Refinitiv, SPAC Research Source: Barclays Research, Bloomberg, Refinitiv, SPAC Research

In addition, we also explore if the SPAC size (proxied by Trust Account Values) offers any

insight into their performance. Larger SPACs are often a reflection of the quality of a sponsor

(i.e., investor faith in the sponsor’s ability to execute an attractive acquisition) though it might

also reflect frothiness in investor expectation. Our analysis shows that SPACs with higher

Trust Account Values (Figure 14) perform better than those with low Trust Account Values.

Similar to size, we also look at SPAC returns by warrant structure. Typically, fewer warrants

per SPAC unit suggests less concern around dilution and the ability of the sponsor to offer

less incentives to attract investors. We find that SPACs with more “standard” unit structures

(stock plus either one half, one third, or a whole warrant) tend to outperform those with less

standard structures which commonly include rights instead of warrants. It should also be

noted that SPACs with the lowest number of warrants (S + W/3) and hence least dilutive,

have performed the best.

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All Y2016 Y2017 Y2018 Y2019 Y2020

Absolute Rel to R2

Average Annualized Return by year of closing

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2 November 2020 12

FIGURE 14

Larger SPACs (based on Trust Account) tend to outperform

smaller SPACs

FIGURE 15

SPACs with fewer warrants have tended to perform best,

while those with non-standard structures have

underperformed


In summary, we find that the key takeaways of SPAC returns are:

SPACs on average have annualized returns of ~17.5% (or ~16% when accounting for

SPACs with no acquisition), but this distribution has a strong positive skew. The median

SPAC annualized returns has been ~5% since 2016.

The returns of SPACs are usually positive from year to year, even as equity markets gain

or lose. SPACs returns have also been especially strong for SPACs that have closed in

2020.

Larger SPACs and SPACs with standard unit structures and less dilution through warrants

tend to have stronger returns. SPACs with trust account values over $250 million have

the strongest average and median returns, while SPACs with non-standard unit structures

have much weaker returns than those with lower levels of dilution through warrants.

Overall, in our view, the positive annualized average returns of SPACs (from their IPO to the

close of an acquisition by the SPAC), the wide dispersion of returns, and positive skew are

patterns which would make SPACs a candidate for systematic investing.

SPAC acquired (de-SPACed) companies: Underwhelming performance

though larger companies fare better

While SPAC returns from IPO to acquisition closing have seen consistently healthy since 2015,

the companies that have been acquired by SPACs (de-SPACed companies) have not fared as

well. Note that following the completion of an acquisition by a SPAC, the SPAC transforms

into the stock of the acquired company and the forward returns of the stock reflects the

valuation and prospects of the acquired company. In our analysis of the forward returns of

the public company post its acquisition by the SPAC, we look at both absolute and relative

returns. For relative returns of the de-SPACed companies, we use the Russell 2000 and

traditional IPOs since at the post-acquisition stage this would be a reasonable gauge from an

investor’s standpoint. It should be noted that we have slightly less data when analysing the

returns of companies acquired by SPACs as we only include names which have 1 year of

return history post acquisition and thus do not include many of the SPACs that closed their

acquisitions in 2020.

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Average Return Median Return

Returns by SPAC Trust Account Size

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Returns by SPAC unit structure


2 November 2020 13

Figure 16 and Figure 17 show the average and median returns of de-SPACed companies in

the 1M/3M/6M/1Yr period following acquisition. The immediate takeaway is that on average

de-SPACed companies underperform not only on an absolute basis, but also relative to the

R2000 and the average IPO from 2015 to the present.

FIGURE 16

Average returns of de-SPACed companies tend to perform

poorly following their acquisition …

FIGURE 17

… and median returns too


To get more insight into the underperformance of de-SPACed companies, we look deeper

into their performance by size. Figure 18 shows the average returns of de-SPACed companies

broken up by the Trust Account Value of the SPAC at time of acquisition closing. We can

clearly see that the primary driver of de-SPACed company underperformance are smaller

companies, especially those with Trust Accounts under $400 million at the time of

acquisition. For companies above $400 million the average one-year forward return is 6.8%

with a median of 10.5%, which is respectable over the period from 2015 to 2020 YTD.

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2 November 2020 14

FIGURE 18

Smaller de-SPACed companies tend to perform much worse than larger acquired

companies

Source: Barclays Research, Bloomberg, Refinitiv

SPAC Returns vs future returns of de-SPACed companies

We next explore if outperforming SPACs lead to outperformance of the de-SPACed (acquired)

companies. In other words, do SPACs that outperform through the close date of an

acquisition result in the subsequent outperformance of the acquired company (that is now

public)? The answer is yes, but only for a certain subset of companies.

Figure 19 shows the relationship of SPAC returns from IPO to closing vs the returns of their

acquired companies one year after closing. In general, when SPACs have low annualized

returns (less than 5%) their de-SPACed companies tend to fare poorly. However, as SPAC

annualized returns exceed 15%, the returns become much stronger. In other words,

investors’ confidence in higher quality sponsors (proxied by higher SPAC returns) has borne

out in the performance of the acquired companies. So while for most SPACs their de-SPACed

companies tend to perform poorly, the outliers have proved to be better investments.

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< $150Mil $150Mil - $400Mil $400Mil >

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Return By Trust Account Size


2 November 2020 15

FIGURE 19

There is little correlation between SPAC returns and their de-SPACed company returns

when returns are low but there is a higher correlation when SPAC returns are very strong

Source: Barclays Research, Bloomberg, Refinitiv, SPAC Research

The shifting landscape of the SPAC market

Perceptible shift in SPAC capital deployment toward higher growth,

disruptive tech, and companies with less operating history

The tremendous growth in the SPAC market in 2020 has been accompanied by a perceptible

shift in the types of companies that SPACs are acquiring and the industries they are focusing

on. While historically, the bulk of SPAC capital was deployed into traditional industries like

Industrials, Tech, Consumer Discretionary, and Energy, it is now being increasingly

channelled into areas like Disruptive Autotech, FinTech, and Online Gaming sectors. This shift

does reduce the comparability of historical returns as a yardstick to gauge future returns.

FIGURE 20

SPAC capital deployment has shifted from traditional

industries in the past…

FIGURE 21

…to companies with less operating history in sectors like

Disruptive AutoTech, FinTech, and Online Gaming

Source: Barclays Research, SPAC Research, Refinitiv Source: Barclays Research, SPAC Research, Refinitiv

In fact, the fundamentals of acquired companies are also very different as SPAC acquisitions

have moved from companies with a reasonable operating history to ones that are essentially

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

< 0% 0% - 5% 5% - 15% 15% >

1Yr Forward Ret

Median de-SPACed Company Return

0%

5%

10%

15%

20%

25%

30%

35%

40%

Weight

Historical SPAC Acquisition Industries

0%

5%

10%

15%

20%

25%

30%

35%

40%

Weight

Current Active SPAC Industry Targets


2 November 2020 16

late stage VC companies. For example, while only 17% of companies acquired by SPACs since

2015 reported no Sales (as of their first annual reporting date post acquisition), that number

increased significantly recently. While in 2019 21% of de-SPACed companies reported no

Sales, in 2020 that number has spiked to over 50%.

Even as this shift has occurred, our analysis shows that de-SPACed companies with no Sales

saw average returns in 2020 (35.0%) that are significantly higher than those of the broader

SPAC universe. While the market has clearly rewarded this shift in focus, it raises concerns of

frothiness in investor expectations. The recent pull back in some higher profile SPACs (such

as PCPL, and FTAC) post acquisition announcement clearly points to signs of investor

disappointment with potential acquisitions targets relative to expectations baked into the

SPACs.

FIGURE 22

SPACs that acquired companies with limited operating history (i.e. No Sales) have tended

to outperform, suggesting that the shift in capital deployment has worked

Source: Barclays Research, Refinitiv

Note: Returns are calculated only using SPACs where Sales data is available. If there is no Sales data available 4

quarters after SPAC closing, Sales is assumed to be zero. No Sales indicates companies with quarterly sales less than

$1mil in the their first available reported Sales from Compustat.

SPAC IPO sizes have increased and so have the size of acquisitions

Not surprisingly, SPAC IPO sizes have increased significantly (up from an average size of $184

million in 2015 to $385 million in 2020). At the same time, the size of acquisition has also

increased significantly. As noted earlier, large acquisition sizes do reduce dilution concerns of

founders of private companies taking the SPAC route to go public. For example, in the case

of United Wholesale Mortgage, which decided to go public via the SPAC route, the seller’s

equity is 94% of the equity base.

0%

5%

10%

15%

20%

25%

30%

35%

40%

FY19 FY20

No Sales Has Sales

Average Annualized SPAC Return


2 November 2020 17

FIGURE 23

The average size for current active SPAC is much larger than

years prior …

FIGURE 24

… as is the average size of acquisitions (EV to Trust Account

ratio)

Source: Barclays Research, Bloomberg, SPAC Research Source: Barclays Research, Bloomberg, SPAC Research

Note: Values are only for SPACs that have completed closings

In Figure 25 and Figure 26 below, we show largest SPAC IPOs this year and the largest

announced SPAC acquisitions.

FIGURE 25

The largest SPAC IPOS in 2020…

FIGURE 26

…And the largest SPAC acquisitions in 2020

Source: Barclays Research, Bloomberg, SPAC Research United Wholesale Mortgage, MultiPlan, and Advantage Solutions acquisitions

have been announced but have not closed as yet.

Source: Barclays Research, Bloomberg, SPAC Research

SPAC terms have also been improving to better align sponsor incentives

with investors

In Figure 27 below, we highlight SPAC structural improvements in recent years that aim to

better align the interests and incentives of SPAC sponsors and investors. These changes seek

to address prior investor concerns and we expect a continuation of experimentation with

feature adjustments and an eventual standardization of some features.

For example, the trend has been toward fewer warrants per unit that reduces the dilution

overhang from warrants. Amongst current active SPACs, there are seven (HLXA, FVAM,

BCTG, FSDCU, ARYA, HSAQU, and RACA) that have no warrants. All of these SPACs are

0

50

100

150

200

250

300

350

400

Y2015 Y2016 Y2017 Y2018 Y2019 Y2020

Avg Trust Account Size

Avg Size by IPO Year

0

1

2

3

4

5

6

7

Y2016 Y2017 Y2018 Y2019 Y2020

EV to Trust Account

Weighted Avg By Closing Year

IPO Date Ticker IssuerIPO Size

($mm)

Intended

Sector

7/22/2020 PSTH.UPershing Square

Tontine Holdings4000

Large Cap,

High Quality,

Growth

7/30/2020 CCIV.UChurchill Capital

Corp IV2070 NA

8/19/2020 BFT.U

Foley Trasimene

Acquisition Corp.

II

1467 FinTech

10/9/2020 IPOF.U

Social Capital

Hedosophia

Holdings Corp. VI

1150 Tech

2/14/2020 CCXX.UChurchill Capital

Corp III1100 NA

M&A

Announce

Date

SPAC TargetEnterprise

Value

PF Market

Cap

7/12/2020Gores Holdings

IV

United

Wholesale

Mortgage

- $16,052

7/12/2020Churchill

Capital Corp IIIMultiPlan $11,138 $6,743

9/16/2019Mosaic

Acqusition

Vivint Smart

Home$5,590 $3,096

12/10/2019GS Acqusition

Corp

Vertiv

Holdings$5,318 $3,376

9/8/2020

Conyers Park

Acquisition

Corp. II

Advantage

Solutions$5,200 $3,300


2 November 2020 18

targeting the Healthcare space (mainly Biotechnology, Medtech, and Life Sciences) pointing

to investor willingness to accept fewer incentives for the prospect of gaining that exposure.

FIGURE 27

SPAC features have been adjusted to better align sponsor and investor interests


In an interesting variation, in the recent SPAC (PSTH; Pershing Square Tontine Holdings), the

largest to date, investors initially get only 1/9th of a warrant. However, they get additional

2/9th warrants per share (from fixed pool of warrants set aside) should they participate in an

acquisition without redeeming their shares. At the same time, if they redeem their shares,

their share of the fixed pool of warrants that are set aside get allocated to the rest of the

shareholders who do not redeem, thereby improving their economics. In addition, in a further

push to align sponsor and investor interest, the Pershing Square SPAC funded warrants are


2 November 2020 19

struck 20% out of the money (versus the typical 15%) and are exercisable three years after

the close of an acquisition.

FIGURE 28

SPACs are currently offering fewer warrants with their units compared to history,

reducing the potential dilution overhang


Note: Distribution does not include SPAC units with rights

Similarly, the de-linking of investor redemption option from their vote option (on an

announced acquisition) in an acquisition strengthens the downside protection for SPAC

investors. It also increases the likelihood of an acquisition getting completed. Another feature

aimed at aligning sponsor interest with investors that is gaining traction is earn-outs. Earn-

outs aim to tie the vesting schedule of the sponsor’s “promote” shares to the performance of

the acquired company’s shares. Though earn-outs features haven’t proliferated as yet, it

certainly points to ongoing evolution and maturation of the SPAC market. An example of a

SPAC with the earn-out feature is GS Acquisitions Holdings II (GSAH).

Velocity of de-SPACing has increased

In recent years there has been a clear trend of faster times to announcement of the

acquisitions following the SPAC IPO. This development has obvious implications for returns

as well given the consistency of the pop in SPAC prices following acquisition announcement.

This trend of faster acquisition announcements also points to a pickup in time value that has

returns implications for investors, especially those considering a more systematic approach

to SPAC investing (i.e. from SPAC IPO to deal announcement or deal closing).

0%

10%

20%

30%

40%

50%

60%

S+W S+W/2 S+W/3 S+W/4 S+W/5 S

Historical Current

% of SPACs with different Unit Structure


2 November 2020 20

FIGURE 29

There has been a declining trend in the time to SPAC acquisition announcements


Note: Data includes companies that have closed their SPAC after acquiring a company as well as active SPACs that

have announced deals. Years are grouped by the year of SPAC IPO.

Announcement pops have increased

The average pop following an acquisition announcement has increased significantly this year.

Even though the YTD median announcement pop isn’t that much higher this year (2.3% vs

2.0% in other years), there have been some big announcement pops (eg. KCAC and GRAF)

that have pushed up the average (18.1%) significantly higher than in other years (~2.5%).

FIGURE 30

The pop in from SPAC acquisition announcement has increased sharply in 2020

Source: Barclays Research, Refinitiv, SPAC Research

Note: Data only includes SPACs that have completed their acquisition. Years are grouped by acquisition announcement

date.

While the announcement pop has been consistent over time, it is worth noting that the poor

performance of several SPACs post an acquisition announcement that there is also room for

over-optimism in the current environment. The price action of FTAC (FinTech Acquisition

Corp III) is a sobering reminder of this.

0

2

4

6

8

10

12

14

16

18

20

Y2015 Y2016 Y2017 Y2018 Y2019 Y2020

Months

Median Time from IPO to Merger Announcement

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Y2016 Y2017 Y2018 Y2019 Y2020

Average Announce Return

Return from 1-day before to 1-day after merger announcement


2 November 2020 21

FIGURE 31

FTAC’s price action shows the sharp pullback following the announcement of an

acquisition

Source: Barclays Research, Bloomberg

Appendix

While our database of de-SPACed companies is limited prior to 2013, we do have good

coverage of data from 2014 – present, representing the second wave of SPAC issuance.

Within that time frame there have been 116 SPACs that have de-SPACed. Of those 116

there were 103 that acquired a company and 100 that we have price and return data for

the SPAC and 99 that we have price and return data for the acquired company.

When looking at the companies acquired by SPACs we believe that the best comparable

universe is either 1) the R2000, due to the relatively small size of companies acquired by

SPACs or 2) the IPO market since SPACs are an alternative route for private companies to

go public.

10

11

12

13

14

Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20

Price

FTAC

Announcement of Acquisition Target


2 November 2020 22

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2 November 2020 23

IMPORTANT DISCLOSURES

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U.S. Equity Linked Strategies: SPAC Metamorphosis

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