You know it has been an unusual year when must-have products are face masks, flour and toilet paper. Wall Street has also been busy stockpiling Special Purpose Acquisition Companies or SPACs. SPACs – or blank cheque companies – are firms that launch an IPO and then buy private firms to take them public.
Merging with a SPAC is easier than floating through a traditional IPO. Companies that are floating on a stock exchange can only use audited public results. SPACs, however, can pitch future earnings when buying companies. High profile companies that have been bought by SPACs include Virgin Galactic and electric truck maker Nikola. One SPAC is now planning to buy Playboy.
Spac Research, a specialist website, says that so far in 2020, some 133 SPACs have been floated raising $51bn. This is already more than three times the number in 2019 and a further 67 have been announced.
One of these is being led by Kenn Ricci, the founder of Directional Aviation – the parent company of Flexjet, Simcon, Constant Aviation, Sentient Jet, Nextant, Corporate Wings, PrivateFly and other business aviation companies.
Ricci, one of the most successful business aviation entrepreneurs, is launching Zanite Acquisition Corporation. Zanite, named after a rare gemstone, is looking to acquire a company or companies involved in the Fourth Aviation Revolution.
“We don’t want to do the same thing again and these are exciting times in aviation,” says Ricci. “We are looking at new areas like electric aviation, sustainable aviation and other emerging technologies.”
A SPAC will allow Ricci to target bigger companies than Directional Aviation usually focuses on. “We typically have around $30m to invest in equity in each new company. With leverage we can make that up to around $100m or $150m,” says Ricci. “There are private equity companies interested in several billion-dollar companies but there is a gap between what we do and what the large funds are doing. That is why we have filed for a SPAC.”
Zanite Acquisition is not the only SPAC looking at business aviation. Jefferies, the leading business aviation investment bank, is marketing one for Houston private equity firm Genesis Park.
Genesis Park Acquisition Corp’s management team includes David Siegel, former CEO of United Airlines and past chair of XOJET; Jonathan Baliff, former CEO of helicopter operator Bristow; Richard Anderson, former CEO of Delta Air Lines; and Wayne Gilbert West, former chief operating officer of Delta and a board member of Wheels Up.
“Our business strategy is to focus on all subsectors within aviation end markets, including aerospace and aviation services providers, whose customers are mainly aircraft operators in passenger, cargo, business aviation or other end markets,” says Genesis Park Acquisition in its prospectus. Genesis is looking for companies worth between $500m and $1bn.
SPACs do not have to say which industry they are targeting and several others are looking at business aviation. Wheels Up has had several approaches. Sudhin Shahani, CEO of Surf Air Mobility, has said that he is hoping to take his company public through a SPAC “within the coming months”. Another business aviation specialist is working on launching a SPAC now.
Not everyone is convinced by blank cheque companies. The fact that one SPAC has been launched to invest in other SPACs – a SPAC-of-SPACs – is a clear sign of a frothy market. The record issuance is also timely as 2020 is the 300th Anniversary of the South Sea Bubble. In 1720 an infamous company was said to have sold shares: “For carrying-on an undertaking of great advantage but no-one to know what it is.” Sadly this is probably not a real story.
SPACs have been around since the 1990s and there have been several scandals. Their performance has been mixed. Once floated, SPACs typically have two years to buy a company or return the cash – so they are pressured to buy. In August the Financial Times showed that most SPACs listed between 2015 and 2019 are trading below their listing price.
But not all SPACs are equal. Research from McKinsey & Co shows that SPACs led by industry experts outperform ones led by financial managers by 40%. This makes sense. McKinsey says that SPACs need managers with an “operational edge”.
Ricci has clearly demonstrated that he has this edge many times and wants to do it again with Zanite Acquisition.
“There are a lot of SPACs, but we are offering something very different,” says Ricci. “Our strength is our industry knowledge. We are an inch-wide but a mile-deep.”