When Spacs attack

Rob Armstrong (0:06)

Pushkin.

2025 is a strange year so far. Volatility is high, regulatory uncertainty is everywhere. No one knows what Donald Trump is going to say next. It's a tricky environment for investors, but one rather spooky and speculative investment is doing surprisingly well this year. The Special Purpose Acquisition Company, or SPAC. Today on the show, is the SPAC back? And is that whack Jack? This is Unhedged, the markets and finance podcast from the Financial Times in Pushkin. I am Rob Armstrong, coming to you from a rainy and cool New York City, where you can find the Unhedged World Headquarters. And the person I'm joined by is not in fact Jack. It's Aiden Reiter, who is a third of the Unhedged newsletter. Aiden, what's up?

Aiden Reiter (1:04)

Good morning.

Rob Armstrong (1:05)

Well, it strikes me as very odd indeed that there is a SPAC attack this year.

Aiden Reiter (1:12)

Is that what we're calling it?

Rob Armstrong (1:13)

I don't know what should we call it. I mean, it's not like 2021 here, when your dog had a SPAC.

Aiden Reiter (1:19)

Yeah, there were about 600 crazy SPACs in 2021 And they all started really, really getting wilder and wilder the more the year went on. But this year, so far, we've gotten 44 SPACs, which is not a lot. But considering that we had only 57 in 2024, that's a meaningful change. I mean, it shows that we're going to have a lot more by the end of the year.

Rob Armstrong (1:40)

Right on. And how much money are we talking about, ballpark figures?

Aiden Reiter (1:43)

So far, just in the initial raising, it was $9 billion.

Rob Armstrong (1:47)

Let's take listeners through what one of these things is, in case any of them are lucky enough to have forgotten what a SPAC is since the SPAC heyday of 2021

Aiden Reiter (1:57)

Yeah. So a SPAC is a Special Purpose Acquisition Company. Essentially, it is a shell that is listed on the market. So right, it's just raising cash in and of itself. And the goal is to either buy or merge with an existing company at the end. So people do this different ways. It could be that you have a company already, and IPOing is a pain in the butt. So you raise a lot of money on the market, or you think you might raise more money if it is a SPAC, and then you buy the company and that brings your company public.

Rob Armstrong (2:23)

Okay, so the idea is you're basically listing a pile of money along with a promise to do something clever with that pile of money at some point.

Aiden Reiter (2:32)

Exactly, and you can either do it with a company you already own, or very famously, it could just be a blank check. You say, I intend to buy a company, please give me the money to do so.

Rob Armstrong (2:41)

Yes, trust me.

Aiden Reiter (2:42)

Yes.

Rob Armstrong (2:43)

Yeah, that's why it's so weird this is happening. It doesn't feel like a trust me year out there, but these are kind of trust me vehicles, as it were. So, how do you explain it? And you've written quite well about this, but repeat for me, why would 2025 of all years be a year where we see this sort of slight, but meaningful resurgence of this structure?

Aiden Reiter (3:07)

I mean, crucially, this is about IPOs and regulation. So, Spacs existed for a long time, they just kind of caught fire in 2021 But a Spac exists because it's easier to make a Spac than it is to IPO a company.

Rob Armstrong (3:20)

Yes, there's not a lot to explain. When you're listing a pile of money, what are you going to say in the documents?

Aiden Reiter (3:24)

This is a pile of money. To buy something, we don't know what yet. So, you list the Spac instead of an IPO, it's easier. And generally, they're treated slightly different under regulation, which makes it easier. But the reason they kind of died off in post 2021 could have been because the stock market was doing great. So why would you invest in these? But crucially was because Gary Gensler, who was the head of the SEC, was much more stringent about regulating Spacs and tried to regulate them more similarly to a regular IPO.

Rob Armstrong (3:53)

Gensler was such a hate figure for so many people on Wall Street. A former Wall Streeter himself, of course, but he was ruining the fun for everyone when the going was good.

Aiden Reiter (4:01)

Yeah, maybe if you've already seen how the sausage is made, you know what you need to stop. So anyway, he treated them more like regular IPOs. That kind of eliminates the purpose for a lot of people. But this year, based on who Trump has appointed to the SEC, and based on kind of the sentiment around the SEC, it's expected that it'll be much easier to do Spacs going forward, and that they will be treated differently to IPOs.