SPAC as the new private equity?


BlackRock CEO Larry Fink has highlighted some significant shifts in asset management behavior. As head of the world’s largest asset manager, with $7.4 trillion under its purview, Fink’s comments carry significant weight. 1 He has pointed to the “tsunami of change in asset reallocation right now,” and that SPACs could come to replace the traditional private equity model of buyouts. 2

So how do SPACs and private equity platforms compare? They both raise capital from investors and use that capital to fund new deals. The differences lie in the shift in emphasis from private to public markets. 3 Private Equity deals are conducted in private. An up-and-coming company conducts closed back-room deals to gather financial support and execute the complex IPO process, and the benefits of this process are accessible only to the most seasoned or institutional investors. In contrast, the SPAC route to public status opens the deal up to the public market. Any individual investor can buy shares in the SPAC, and later benefit from a merger or acquisition. If the market previously acted as though the elite held the cards, the SPAC boom is proof of the confidence that public markets can do a better job of appreciating long-term, big idea opportunities than private ones.

However, despite the recent expansion of the SPAC space (in the first 10 months of 2020, 178 SPACs went public, raising $65 billion, which is more than the last decade’s worth of such deals combined), private equity is not going away. This means that SPACs and private equity are essentially in competition for a finite number of deals, which could inflate valuations. However, the private equity establishment such as Apollo, Oaktree and TPG have declared their intention to enter the SPAC market too, which means there is much here for savvy investors to take note of. 4

1“BlackRock’s Assets Surge to Record $7.4 Trillion,” Bloomberg Daybreak, January 15th, 2020

2“Year of the Spac, Fink sees a ‘tsunami of change’, US-China climate fight,” November 18, 2020.

3 “Public markets are the new private markets. Why SPACs are really a play on the long-term visions public markets support better than private capital,” Myles Udland, Oct 5, 2020.

4BlackRock CEO says SPACs could replace private equity platforms, CNBC, November 25, 2020.