The new buyout barons: How SPACs are competing with private equity
06 August 2020
Last month I wrote that SPACs are the new IPOs. But I may have understated it, because SPACs are also becoming the new private equity.
By the numbers: Short for "special purpose acquisition company," SPACs have raised $24 billion so far in 2020, with a loaded pipeline of upcoming offerings. U.S. buyout firms raised nearly $102 billion through the end of June — a much larger amount, but not so much larger that the two can't play on the same field.
What's a SPAC? A shell company that raises money from the public markets for the purpose of buying a private company, thus converting it into a public company. SPACs also are known as blank-check companies, while the acquisitions are also known as reverse mergers.
Mr. Dictionary: Yes, there's a definitional problem with claiming publicly traded entities are the new private equity. Humor me on that.
Between the lines: Private equity and strategic acquirers have long battled over which offers the greatest advantages to target companies when pricing is effectively equal. SPACs are now a sufficiently capitalized alternative to both, representing a combo platter.
- SPACs usually let existing management remain in charge. Private equity often does that too, but has much greater ability to swiftly reverse course.
- Strategics give acquired companies a public currency with which to make hires and acquisitions. So do SPACs, without having to ask for permission.
- Private equity may take a portfolio company public, but it's more likely to sell it to a strategic or other financial sponsor. SPACs give management more say in their company's future.
- Both private equity and SPACs can add debt to a company's balance sheet, but only one is likely to follow that up with dividend recaps.
Private equity does still let a company avoid the hassle and costs of public disclosure, which can lead to higher executive pay, but that’s typically a better sell for troubled companies than growing ones that plan to soon to public anyway.
The bottom line: Private equity is sitting on tons of dry powder and isn't going away. But it's no longer the only game in town.
Transcripts show George Floyd told police "I can't breathe" over 20 times
Section2Newly released transcripts of bodycam footage from the Minneapolis Police Department show that George Floyd told officers he could not breathe more than 20 times in the moments leading up to his death.
Why it matters: Floyd's killing sparked a national wave of Black Lives Matter protests and an ongoing reckoning over systemic racism in the United States. The transcripts "offer one the most thorough and dramatic accounts" before Floyd's death, The New York Times writes.
The state of play: The transcripts were released as former officer Thomas Lane seeks to have the charges that he aided in Floyd's death thrown out in court, per the Times. He is one of four officers who have been charged.
- The filings also include a 60-page transcript of an interview with Lane. He said he "felt maybe that something was going on" when asked if he believed that Floyd was having a medical emergency at the time.
What the transcripts say:
- Floyd told the officers he was claustrophobic as they tried to get him into the squad car.
- The transcripts also show Floyd saying, "Momma, I love you. Tell my kids I love them. I'm dead."
- Former officer Derek Chauvin, who had his knee on Floyd's neck for over eight minutes, told Floyd, "Then stop talking, stop yelling, it takes a heck of a lot of oxygen to talk."
Read the transcripts via DocumentCloud.