A spate of technology, media, and telecom deals could be in the pipeline given the volume of special purpose acquisition vehicles, according to a newly released Spring 2021 SPAC Market Report from Duff & Phelps, a Kroll business. A third of such vehicles that are currently active are targeting TMT assets. The result could be a busy year for the sector.
Duff & Phelps’ report covers SPAC IPOs and acquisitions over the first quarter of the year. Highlights emphasize recent headlines about the unique listing structure, which allows a sponsor to raise equity in a blank check acquisition company and reverse merge with a target after listing. First quarter listings raised $170 billion in proceeds, and 433 such vehicles were still seeking targets as of that time frame.
Technology deals will be in the center of the action if the proportion of vehicles targeting the sector have their way. At 33 percent, active SPACs in this industry far outpace the 19 percent of unspecified blank check companies and 13 percent of healthcare-focused listings.
The would-be TMT deal frenzy could present a powerful lift for sector valuations. SPACs paid less for target companies in the sector in 2020 than in recent years, with a median acquisition value of 13.5x the last twelve months’ earnings. That’s relative to 18.1x paid in 2019 and 13.3x in 2018, when equity offering proceeds were only a quarter of 2020’s aggregate haul.
Social Finance’s (Nasdaq: SOFI) shares have risen 117% since its January SPAC acquisition and market debut. Meanwhile vehicle-to-grid software provider Nuvve Corporation’s (Nasdaq: NVVE) listing by acquisition, announced in November, registered at 23.9x enterprise value to LTM revenue.
A robust deal pipeline dovetails with management and strategy consultant Kearney’s report Forged in Crisis, Poised to Innovate released last week. Survey results co-author and U.K. consumer practice leader Bahige El-Rayes tells Mergers & Acquisitions that SPACs pose a viable alternative to a sale to private equity buyers or public markets that might require a more novel equity story.
“In our survey, private companies are very bullish on that,” El-Rayes says. “Executives of private companies are looking at that space with a lot of interest. They believe its new access to funding” with less scrutiny than going public.
TMT could be in for a frenzied second half of 2021.