The SPAC (Special Purpose Acquisition Company) craze has made its way into the commercial real estate industry during the first few months of 2021. Since the start of the year, coworking company WeWork saw its dream of becoming a publicly traded company come true through a SPAC merger, Silverstein Properties launched its own SPAC and smart lock software creator Latch went public courtesy of CRE firm Tishman Speyer’s SPAC, TS Innovation.
SPACs are attractive to businesses that want to go public because they can sidestep the traditional IPO (Initial Public Offering) route. They can go public faster when an SPAC acquires them and often get a much-needed cash infusion. For example, WeWork received approximately $1.3 billion when SPAC BowX acquired it. Meanwhile, SPACs enjoy the large sums of money that investors, bankers and wealthy individuals will provide them to help acquire promising businesses. One concern with the SPAC model is buyers can overpay, which could eventually hurt shareholders.
“There have been doubts raised about its business model, and those doubts may be difficult to address in an IPO roadshow,” Michael Klausner, a Stanford business professor told The New York Times in March in reference to the presentations companies give to investors before an IPO.
Billionaire investor Alec Gores is one person who’s not concerned about the SPAC model, The Wall Street Journal reports. So far, Gores had created 13 SPACs, which more than any other single investor, according to data provider SPACInsider. His company, Gores Group, uses its own money for every transaction and a lot of times, secures deals despite bidding less than the competition.
“We’re building a franchise,” Gores told The Wall Street Journal. “We’re developing a playbook that gets improved every day.”
For example, Gores was trying to acquire Luminar Technologies, a self-driving car sensor company, last year. Bankers gave Luminar a $9 billion evaluation. CEO Austin Russell instead opted to merge with a Gores Group SPAC that valued Luminar Technologies at $2.9 billion. Russell wanted to work with Gores because of his industry knowledge and Gores’ reputation in the SPAC arena. The deal also gave Russell’s company $300 million that it could keep whether the deal closed or not.
“We don’t buy you,” Gores said he told Russell, who also got to keep his super voting shares in the deal. “You’re selling a small stake in your company to get capital to finish your dream.”
Gores Group and Luminar completed the deal in December and the company’s stock went up and the valuation surpassed $9 billion, according to The Wall Street Journal. Gores has also signed deals to take Hostess Brands, Inc., an online mortgage originator, a spatial-data company, a short-term rental company and others public through an SPAC.
“When the Gores team launches a new SPAC, the demand for the deal is already there,” Kristi Marvin, founder and CEO of SPACInsider told The Wall Street Journal. “They have enough experience and credibility that most investors are going to want to participate.”
Twinkies and Tweaking
Since Gores merged his first SPAC with Hostess in 2016, he’s seen a variety of companies sell to SPACs, such as Richard Branson’s space firm Virgin Galactic Holdings and sports-wagering company DraftKings, The Wall Street Journal reports.
“I’m paying attention to what other people are doing. I’m a student all the time,” Gores said. “I started thinking I could build a real franchise in SPACs. My vision for the SPAC world is first to do this for a long time. I focus 100% of my work energy into this. I want to be the best SPAC guy in the world.”
Joe Dyton can be reached at email@example.com.