Financial Sector SPACS Take Hold

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The mainstream emergence of Special Purpose Acquisition Companies (SPAC for short) has became one of the hottest market stories of 2020 and the trend appears to be continuing into the new year.

This past week, two high profile fintech firms – SoFi and Bakkt – announced they would be participating in SPAC offerings.

The original CEO of Bakkt was Senator Kelly Loefler of Georgia, who is married to Jeffrey Sprecher of ICE, the Atlanta-based firm that acquired several international trading exchanges in recent years, including the NYSE.

Bakkt was originally founded in 2018, with an enviable list of initial backers, offering bitcoin futures settling in bitcoin (not cash). The firm has gone on to provide a significantly more diverse product offering.

According to their Linkedin overview, “Bakkt® unlocks the $1.2+ trillion of digital assets that is currently held in cryptocurrencies, rewards and loyalty points, gaming assets, and merchant-stored value. We began in 2018 with the vision to bring trust and transparency to digital assets. Through the Bakkt Warehouse and Bakkt® Bitcoin Futures and Options contracts, we serve institutional clients in an end-to-end regulated market with true price transparency. For consumers, Bakkt aggregates digital assets to enable instant liquidity and to empower users to trade, transfer, and pay however they want. Merchants within the Bakkt ecosystem see a lower cost of payment acceptance, enhanced customer engagement, and decreased loyalty liability through a variety of redemption options.”

Bakkt is set to go public after it merges with VPC Impact Acquisition Holdings (VIH), and is “sponsored” by Victory Park Capital out of Chicago. Bakkt’s valuation will be pegged at $2.4B – unicorn status.

In another high profile offering, SoFi recently announced it will also go public through a merger deal valued at $8.65B with SPAC Social Capital Hedosophia (SCH), headed by venture capitalist Chamath Palihapitiya. SoFi anticipates using the proceeds for business expansion and payback of its $1.2 billion debt-based acquisition of the payment software firm Galileo.

We turned to Larry Roth, RLR Strategic Partners Managing Partner, who serves as Lead Independent Director of Kingswood Acquisition Corp., a SPAC focused on the wealth management space, for further insight into this emerging trend.  Roth was also previously CEO at both AIG Advisor Group (now Advisor Group) and Cetera Financial Group, and is currently a Board Director at Oppenheimer. According to Roth, “It’s not surprising that the SPAC structure is generating significant interest and attention from the wealth management and fintech communities, because it offers a truly unique set of advantages that go beyond most traditional private and public capital-raising transactions.”

“Business owners that sell to a SPAC typically can retain a much greater ongoing ownership stake than would be the case with a sale to a private equity or venture capital firm.  This can be especially appealing to entrepreneurs who need more growth capital, but they don’t want to enter deals where their share of the future upside could be limited because they are losing a meaningful ownership stake.”

“Also by way of comparison, traditional IPO transactions can be very costly and time-consuming, while SPACs essentially offer an immediate shortcut to going public, without all the usual process complexities.”

At the end of the day, it’s clear that SPACs – which have actually been in existence for a long time (and previously referred to as “blank check companies”) – are emerging as an important “new” way to get companies public faster and less expensively.

As they say, everything old is new again.