The Daily Dish (4/19/21)

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Will private equity get caught up in a SPAC showdown with regulators?

Showdown on Wall Street

New SEC chair Gary Gensler appears ready to scrutinize SPACs after a year in which the number of blank-check companies surged.

Industry heavyweights including Apollo Global Management, KKR and Bain Capital have all recently registered SPACs of their own, with Apollo filing to raise $400 million for its latest blank-check company last month.

PE firms have played a starring role in the SPAC frenzy, with proponents touting the advantages of being able to sidestep the laborious, costly IPO process to take a company public and easing the burden of finding new buyers for portfolio companies.

SPACs have also threatened PE deal flow, with multiple bidders driving up asset prices.

Limited partners have also raised questions about possible conflicts of interest when private equity firms opt to sponsor their own SPACs, according to PitchBook’s latest US PE Breakdown report.

Limited partners have also wondered why private equity firms have chosen to do SPAC deals, rather than use flagship funds to back those acquisitions, expressing concern that their management fees are going toward deal team salaries.

Critics of the lack of oversight for SPACs have grown louder over the past few months after a pair of companies that went public via SPACs-Clover Health and QuantumScape-were accused of misleading investors in reports from research firms Hindenburg Research and Scorpion Capital, respectively.

Travel Startup Inspirato Looking At $1B SPAC Merger

Inspirato 2019 Club Overview by Inspirato - issuu

Luxury travel startup Inspirato has potential plans to go public through a special purpose acquisition company, Bloomberg reports.

The Denver-based company is talking with Thayer Ventures about a deal, according to anonymous sources, although terms could change and the deal might collapse.

Inspirato was doing well in spite of the pandemic last year, with the company seeing booking rates up 30 percent year over year.

The Thayer Ventures SPAC is co-helmed by CEOs Mark Farrell and Chris Hemmeter, who have raised $172.5 million in a December initial public offering and plan to keep raising money to focus on the travel and transportation sectors.

The firm is associated with the company Thayer Ventures, which focused on the same aforementioned industries.

The portfolio for Thayer includes Sonder, the short-term rental specialist, travel search site Hipmunk, and hotel revenue management software maker Duetto, Bloomberg reports.

The travel industry took a hit during the pandemic, with its $1.1 trillion in losses at the close of books in 2020 representing a 42 percent contraction from the previous year.

SPAC Wipeout Is Punishing Followers of Chamath Palihapitiya

Just as Chamath Palihapitiya was the face of the SPAC frenzy that gripped financial markets at the start of the year, he is today the face of the bust.

All six of Palihapitiya’s Social Capital Hedosophia-linked blank-check companies, including three that already completed mergers, have plunged more than the broader SPAC market since it hit its peak in mid-February.

One of them – Virgin Galactic Holdings Inc., a space tourism business that’s backed by Richard Branson – is down more than 50%. All of these losses are greater than the 23% average decline in SPACs, as measured by the IPOX SPAC Index, over that time.

To be fair, almost all of Palihapitiya’s SPACs are still up since their market debuts.

The former Facebook Inc. executive made himself the face of the SPAC renaissance.

For investors who opted to align with a veteran from Silicon Valley at the height of a frenzy over the cadre of celebrities, athletes and politicos that jumped into the space, it’s been Palihapitiya’s SPACs that have been among the worst bets.

His three open SPACs are all in the bottom 20th percentile for returns since the market top.


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