« Exchanges at Goldman Sachs

Companies Continue to Turn to SPACs for Greater Flexibility


Olympia McNerney of Goldman Sachs’ Investment Banking Division talks about the continued momentum behind SPACs as an alternative path for companies to raise money in the public markets. 

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This year, Exchange of Goldman Sachs, where we discuss developments currently shaping markets. Industries in the global economy, objects seaward global, had of corporate communications here at the firm today, we're talking the latest inspects and whether that hot street can continue through twenty twenty one were joined by a libyan mcnerney of our equity capital markets and alternative capital markets group in our investment banking divisions, Colombia welcome back to the people thanks for having me Jake. So let's do it but looking back last year, was a banner year respects they represented a huge amount of the appeal volume in twenty twenty. We saw what was once a bit of an out wire of a product and capital markets start to dominate the markets and it happen overnight. So what were the factors that contributed to twenty twenty activity volumes and why specks in particular, sort of took the spotlight yeah? The great
then adds one that we continue to get over and over here, what's going on, why has a market changes is here to stay just to put it Contacts I mean there were north of two hundred IP is price. Last year, this fact alone more than a hundred billion dollars capital raised today, there are more than two hundred and fifty backs on behind and when you multiply. You know that capital has been raised in what could be employed terminate a can potentially represent more than five hundred billion dollars of emanate, so clearly this is something that is going to change the landscape, not just for companies coming public. But also in emanate over the next two years. So it's really interesting to see how has exploded in particular over the last few months, like we ve, never seen before. So what's changing the last time we spoke, we spend a lot of time on the quality of the sponsors and that way,
it continues you now we went from a small number of hypotheses sponsors to today aiding credit, the high number of high party sponsors and were seeing that, in terms of the times this back, so the warrant coverage in the facts were seeing that in terms of the investors that are buying back, there are looking at these answers and sang. These are people that I want to put my money alongside us, though, that I think it has continued, but what I really think is gaining a lot of action. If I had to put it into one or two words, I would say flexibility and optionally. This is a product that is flexible, and when I think, about companies wanting to control their destiny. A little bet that flexibility is appeal, right, so to be able to negotiate with some stocks in a peaceful manner. Evil, tat control, turns to be able to potentially put earn out and play right. We ve seen a lot of ideas, price that have traded up very significantly
the aftermarket and so to be able to capture some of that back and from the been earn out where a company could potentially earn higher values as a stock means higher and higher. You know that clearly is flexibility that you don't necessarily have in an ip out, like I said, controls, destiny. I mean a stack of someone that your partner in West there, like the debate you're, bored, they're, gonna become an investor in your company and so having met control over european business like having a little bit more control in terms of the marketing process. Right we talked about this before Mostar we'll go out and will raise pipes concurrent with the business combination and so being but I really stand a couple of weeks talking with investors, sharing more information, sharing projections doing it. He bore a level of belgian investors. All of that can be incredibly appealing to accompany. So it's not to say this back doesn't come with costs but, like I said,
If I had to really boil down to one word its flexibility- and I think this is a product that will continue to appeal to companies because of that flexibility, that it offers relative to some traditional paths, whether it be ip or online so Olympia. There was a period in the forward, seemed for a moment at least that there was a little bit a setback fatigue. But how did you help clients steer through that pause in the market and what's your view on the sustainability of the product and why it was an interesting moment in time, because the equity markets continue to grind higher and higher, and you know incomplete. contrast. We had a stock market that all asylum came, you know effectively to a halt, and The way I think about it is that this is normal. Like all markets, we will see periods where they are wide open and periods where things slow down, and it really came down to just too much supply too much supply not ass, demand and people feel
overwhelmed by that supply, and so you know call it Amber October and in early November there were some, I was in the Goldman Sachs response was we need to slow things down when you to listen to investors and take that feedback and really kind of slow our supply not granted. We are a slice of the market were not everyone. There were certainly others are out there that were you no kind of going in placing a deal at any cost, but eventually, I think the rest of the market listened and I appeal volumes came down meaningfully. The other issue away from the stack IP owes was a a number of thing raves. Not surprisingly, when you unleash two hundred plus backs they going I deal, and then we have a tremendous amount of pipe raising in the market and so yeah last year during the timeframe at any one point in those couple months, it fell, there were at least twenty pipes in the market? And that is just an enormous number when you think about just how many companies are coming I'm a given weak and so those pipes
struggling the market with fatigue and when Those were announcing they weren't trading. Well, when it actually happened is because the supply flowed. It really allowed the indigestion to work its way through the market we finally got to point where the tapes were smaller. They were oversubscribed the business combinations and announce actually traded incredibly well. All was done. We saw capital, recycle and so that capital recycling, with absolutely critical and reopening the market and its interesting as we moved into December. The tone felt quite different. We hearing from a lot of investors that they felt refreshed. They had new capital, put to work that they were excited for twenty twenty one we saw I mean probably tendering teen, business combinations are traded incredibly well on announcement and in the last thing that we size as this product gains more traction, just the scope of investors better looking at the product, both the front end IP and the tides issues is expanding exponentially and
Put all that together sitting here in twenty twenty one. The market feels very, very healthy. You know that week alone, it's only one day, and there are many many facts that are in the market. Deals are well oversubscribed and I think it comes back to that point that capitalism elbow that new investors are interested without a doubt. With eighty stocks that are on file, we will had another speed up at some point this year, but right now the market is efficient and its work in the way it should and the product feels incredibly robust. So someone Libya in the discussion rents, facts we hear a lot about the issuers of this back in about the targets talk alone, investor base, is the same as you might see in an ip or how's it evolved over the past year, yet a question it actually really evolved over the last twelve months, used to be a very mixed group of investors, that by most of the stocks and of course not surprising when we go from
a ten to fifteen billion dollar market to a hundred billion our market? There obviously has to be movement in the investor race or there's no way that two hundred stack ideas get done. He knows we sit here today. What strikes me is how broad the investor university that is looking at bath, so it is their traditional stack investors. So many of the convert our funds, a lot of the multi, strap hedge funds but just I mean the floodgates and opened in terms of what I would call traditional mutual funds that are now looking at the product and saying it's hard to ignore right when somebody becomes fifty percent of the overall. I appeal market and companies that these funds would want to buy if they were going public regular way are going staff. I think the product becomes referred to ignore so dear ask your base, has really really shifted over the last few months and it doesn't look exactly,
its british life you're right. It's not for everybody. There still gonna, be investors at say. I'm not gonna. Stick my cache and trusted way around for a year. That's not my business model, but instead to look closer and closer to us traditional ip out might otherwise look like if we don't capture all of the investors. the actual stack ip o. The point in time that looks very like a traditional ip out, is when we go and raise the stack tight again. This is an area It has really really shifted over the last college, twelve to eighteen months, pipes used to take ten to twelve weeks You know we, the canvas the globe incredibly slow process. A lot of time educate investors around what a stock was. What a pipe was you fast forward to today? Investors are very actively reaching out to us in thing. Please call us on your pilots, police cars and respects the products yield much
Our institution lies in terms of understand of product understanding a process willingness to hold a pipe which is in a liquid security for some amount of time. But when we actually go and re that high, it really does look like you're tradition, IP. So we have you, no big mutual funds take hedge funds that are participating and, like I said it really is an opportunity for a company to treat their shovel debates a little bit more as you wouldn't it, additional ip process. So certain industries above sea seem more activity than others. Similar hotspots were tack, healthcare Gee related backs. Do you think those set We will continue to see the bulk of the activity or other other industries under the radar that may start seeing pick up, inactivity yeah, Is it going to be concentrated in those areas, and that's not surprising. I mean at the end of the day they companies that are coming public vs back our company, that should be in
public markets and not surprising, when we think about the overall, U S markets the market. Dominated by both tack and healthcare appeared, so it's not surprising that stocks are men, king. The overall. U S backlog, yes, cheese probably the one area that deviate too, but from what we see in the traditional ip. A market in their clearly are a very long list of yes to companies and wore a little bit earlier stage for the traditional I've YO process, but those companies are clearly partner emits back to expect that he knew the one other area that I think is seeing increasing traction is never call property technology. Property tat were received. A handful of back come out with that focus area. We expect that will be a little bit were in that area this year, but overall, anything with that kind of tech overlay, whether it's pure attack healthcare attack, auto attack proper. the attack. Those are the areas that we expect to be incredibly busy. This year, so most of last year's back, which has
giggly American TWAIN too. It was a u s product, but we did few Europeans backs income for. Do you think the product global appeal, or is it going to be primarily focused in the american market? Yeah, we I've seen a couple of Europeans back? We have also seen a couple of facts that are focused on Asia in China in particular. You know, my view is that that is going to, continue its hard to ignore the success of the product has had in the: U S: on a global reach and so water haven't been as many. There certainly are some, and we do think that for the right solution asian right, these stocks, familiar listed in the U S market. So we need to find a company that belong in the. U S markets, but I do think we're going to see more of these Europeans backs agents even Latvians backs that are chasing the opportunity for there plenty of great companies
across the globe that would ultimately end up in the. U S: markets uniting the real question is that the market in Europe is different than the market in the: U S in terms of these stack rules in partition. learn that relates to redemption rights. The? U S market have redemption rights, the european market of not, and so I think that He question this year will be, if there innovation in the? U S, markets to enable stacks to list in there, market suspects to list in Europe and actually take companies public in your as opposed to having to move them into the EU s market. So it's along saying. Yes, we its extraction, and we also you are working in thinking about evolution in the home market themselves, so product itself with all this activity has started to evolve, and we ve seen some innovation in the product of a speck corporates backs. Particular emerged towards the end of last year. Talk a little bit about that product and what
need. It serves in the marketplace day yeah the club, fact is really interesting? I don't think it's for everybody. It's certainly complex It involves conflict, it requires a lot of board scrutiny, but that being said, I think getting radically interesting for some companies and I do think it's gonna pick up as we think about what's been done, and what out there. We certainly see this as an area of growth in the market this year. The reason I think it through the interesting that it's a way for companies to pursue transactions or deals. The hat a strategic overlay right that have some type of synergy between their own deserts and this their business that they may be transacting wise, but it's not ultimately a company or a deal that belongs on the corporate bound she'd. It wouldn't be a natural murder target. It would be a natural acquisition target either because it deviates from a core business or from a multiples perspective. It doesn't work but
where there is a clear synergy in these two businesses belonging to gather- and I really like that, as I think about a lot of the stacks and theirs nothing wrong with this fact, but I think a lot of the stocks are out there. It's really more a financial transaction. I think the corporate stack is really interesting because it does bring something operational strategic to the table, and so is a company things about its options and one option is here to be established the financial partner or another where there is really kind of that strategic angle. I think it makes a compelling argument for these corporate tax to be able to engage in and execute transactions near. The last thing I would say, is many companies run big venture investing arms and to be able to execute them. Her strategy, but in a manner where you have a promote associated with it. You know four for some company that promote won't be big enough to move the needle for others. It could be very meaningful. So, overall I that's the super injure saying strategy for some companies in absolutely expect that it's gonna continued again traction
so we saw a lot of innovations backs. Last year we Gorman debuted anew. I appeal platform odyssey their direct listings, still some really big ones alive, creativity in structures in being able to tailor solutions for different clients in the equity capital markets. Is this a new era in capital markets? More broadly just a lot more innovation that we've seen in the past and what's driving it? I think it is I think we're at a moment in time where companies and investors have and want more options? The tradition? I appeal path is going to be the path that most companies take, but I think people want depending on objectives right, every company has a different set of objectives and, depending on those objectives, there are now more and more paths to achieve those objectives, and so I think, as companies in boards really kind of and figure out what's in when to them is that you know? Is it feed to market is it can
for all overpricing pricing as a greater control over allocations is it traditional research process all of those elements? Is it finding a stack that has a halo and weighing all the costs of these options? I really do think that these options are creating. You know what you said: a new era in the capital markets, like I said I think the ice show is really the backbone and all of these products are really just different innovations on the ipo itself. This back is really bringing a company public and we're just doing it in a different way. I think you see a lot of innovation with the banks themselves over the next twelve to twenty four months. The market is becoming more competitive and these facts are going to have to become more competitive in order to appeal to companies but overall, like this is to me. You know this is gonna, be a really really interesting period, as I said before I mean two hundred and fifty backs could execute upon five hundred billion hours of transactions. Knife
The jury is out and if there are that many companies to transact wet, but it certainly gonna make for an interesting and very busy next couple of years and from an industrial perspective. It's a really interesting time and there are different ways to invest in these companies and different way that these companies are coming public, and so it's been really really interesting to work with our investing partners around how we taylor these processes to work, for both sides are analysed well, thanks for their thorough review, the stack landscape will I'll be back later in the year to see how it's gone. If things about driving having me back, this episode of exchanges, Goldman Sachs, if a listening and if you enjoy the show, we hope you subscribe an apple pie, Gasolene rating our economy in Tunis. Later, in the week far with the markets update were leaders run the firm, give a quick take on what watching in the markets. This podcast, recorded on Wednesday January sixth in the year two thousand and twenty one thanks
all price references and market forecasts correspond to the date of this recording. This podcast should not be copied distributed, published or reproduced in whole or in part the information contained in this package does not constitute research or recommendation from any Goldman Sachs Entity to the listener. Neither Goldman Sachs nor any of its affiliates makes any Rep
and or warranty as to the accuracy or completeness of the statements or any information contained in this podcast in any liability, therefore, including in respect of direct indirect or consequential loss or damage, is expressly disclaimed. The views expressed in this podcast or not necessarily those of Goldman Sachs and Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs too that listener, nor to constitute such person a client of any Goldman Sachs Entity.
Transcript generated on 2021-07-01.