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Markets Update: SPACs

2020-08-07

Olympia McNerney of Goldman Sachs talks about what’s been driving the surge in SPACs as an alternative avenue for companies to raise money in the public markets. 

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
Welcome to our exchanges, Goldman Sachs Markets Update for Friday August seven. Each week we check him leader across the firm to get his or her could take on what they're watching in markets objects. Would go ahead of corporate unification to the firm and today's guest is Olympia. Learning a member. The equity capital markets in alternative capital markets in Europe today will be talking about a subject that has been much in the news backs in the flurry of interest regime recently in that vehicle. A Libya welcome to the programme. Thanks are having so little the basic definitional issue. What is a setback and why are they all the sudden on the rise? Yeah? Of course, I think this is a term that
change and for a sanction a lot over the years to level sat, a stack stands for a special purpose acquisition court, and what that means is that effectively we raise capital for the staff and its pool of capital that can be used to purchase a steak and accompany and bring public through I say it's changed a lot over the years. That is to be something that was used as a method of last resort for companies and fast forward. Today, stocks and I'll get into more detail have been increasingly popular in terms of an alternate way to bring companies into the public markets. Ok, Why exactly our specks getting so much attention right now and why they seem so much capital flow into the yard. The great caution let me just give you a little bit of contact right now, they're about a hundred plus facts that are on the hunt for acquisitions and defeat
that, in terms of dollars, that's about thirty billion dollars of capital on behind to bring companies into the public markets stacks. We have a little bit of a ratio, leverage ratio in terms of how much capital they have relative to the size of the company that they buy through that thirty billion. Think a bet, it's probably a hundred and fifty billion dollars of market calf. That's facts right! hunt for so a very, very large number. So you might ask you know striving that why that number, so big companies point B is that's going to be successful, and I think what really really important to highlight and think about it at the profile of facts is really really changing. Not just over the last three years we are seeing at even over the last six to twelve months that the types of sponsors is really high grading. The other reason why I facts are getting a lot of attention are twofold one. I think people are getting more and more comfortable with the economics of how the stack works. We can talk in a lot.
Detail around the promote the warrants overcome structural bells and whistles. But what I would say about a high level today is that staff economics, are becoming more friendly, more friendly for companies that are considering merging with facts and more friendly for investors to the fact that they are willing to tweak the promote, has made the structure much more company and Gerald your friendly. The last night say that. I think it should become one more tool in the toolkit for company thinking about ways to get public or sponsors that our thinking about how to monetize assets and just like ideas and drank listings there are pros and cons of the back and in particular, I think something that really stand out are potentially faster mines. The ideal market potentially more certainty around value at a certain point than an ip yo and potentially more proceed than an ip opened. The lever in other big S to all about that
we're at a moment in time where the combination of a much higher quality group, us back sponsors and a potential set a solution to a company is making this product get a lot of attention right now, ok, let's find a little deeper on the pros and cons as you outline what's a general example of when a speck might be a good route for a company to raise money in the public markets a mean. You mentioned some of the benefits already and on the flip side, when might a more traditional ip I'll make more sets, the other great question and where I sat all day long every day, what I would say that great companies are, we too have a lot of options and when we think about that, we're ok thinking about it. With the lessons of should this com, They belong in the public market. So back to me is starting point number one is an appeal: the table, I think they're comes to buckets of companies that make a stack applicable. The first bucket is what I would call a very high growth company that got a long term story.
that would benefit from some of the stack marketing, and so what I mean by that is that marketing is different than your traditional seventy. Ninety I appeal process. It really is bolted months marketing period and it uses forward production that approach which were not able to do and an appeal as one, and so that is certainly beneficial for story that are longer dated and where investors really finally may require more diligence, she get their arms around that longer term, both an opportunity, whether it be the tab, whether it be the company's market, share, whether it be the company's technology, etc, certainly seen that, right now with the proliferation of electric vehicle companies that are coming public through stats, so that certainly one bucket at the other bucket, I would say that very successful with facts Ben onwards, tradition, all other european industrial
Consumer health care, oriented business that is free cash, slowing and the death have a story than the measures can get their arms round the near term, but were stacked, might offer something slightly different than an ip. Oh, I met typically in the amount, is proof that we can raise and so to give us a bit more detail on that. When we think about a successful transaction for us back, we always include a pipe raids in that transaction. It's the validation We require before we announce a merger publicly, that investors light the deal and they like the valuation, and so you ve got a fact that cash and trust- and we bring a title- the table and also more able to deliver meaningfully more proceeds to accompany then what be available in an appeal, and so for that reason, if there's a company that perhaps is over leverage, that might bring that modernization of that public bent forward war in the end,
since, where a company, maybe it's time I proceed at a startled. Her with me watch some instrumental secondary there's a chance at his back and deliver more proceeds, and I appeal to those regretted, Chewbacca site, I would say, are very with general examples of what is working in stocks and the text. the are using start right now versus the traditional IP go to answer the last part of your question: the eye YO and our minds are words in a fantastic, fantastic option for companies that want to get tablet, and so it's really back down to this, decisions that is there anything that means bringing in terms of its value from the founder AIDS are halo from the founder. Is it this marketing point? Is that this size needed Crises point that I'm a margin may benefit the company, but I will come back to the starting point that, whether as the staff or not it's gotta, be a great company that we think can get into the pop up.
That's all right that super helpful Olympia, see you're talking a lot of clients. You said dialogue super active. What excites think about the outlook for specks through the rest of the year and do we think this is a trend? That will continue. Even when markets are little less volatile, yeah There's a lot of debate around the outlook. Is this a bubble is, if a longer term phenomenon I would separate the outlook and to back it. So one just the outlook and The stack issuance, it's gonna, be incredibly Betty, I think across the street. There is a very large pipeline of incredibly high quality sponsors and our line, not two issues backs whose city fortunately sat and really believe in their ability to source companies and opportune did their stock, so very busy issuance outlook in terms of will, this trend is successful, been combinations continue. My view is that I think, with this change of quality standards that are out there, I do think that we are going to see a continued strong pace
business combinations with stats uniting companies are are you waiting their options and having more options for these? Companies is a good thing and I think they're, just a backlog of companies that have been waiting and trying to get to the public markets and so happy one more tool to get them out. There will help continue the pace that we see in a business combination. So my view is that it continue. Obviously, we need to see that deals are working continue to trade. Well, if we have any kind of hiccup in the reception of these transactions, I think it would be a problem, but overall in one of the most important thing and the maturation of this market is the fact that institutional investors, today embracing the products in a way that they have an historic lay. Our phones had been ringing off the hook from investors who want to understand how does the process work had its structure work and what are the types of companies that belong, and I think the fact that we have
we'll institutions that are now looking at it, embracing at and buying new vehicles and by himself in the aftermarket you know, has really change. The dynamic forces that we seen over the last couple years top with our actions in the arts rotation, is that the case is certainly going to continue. It does indeed all right we'll thanks for joining us. They lived the especially under extraordinary circumstances, with your lack of power and all that so thanks for taking the trouble to join us today. Quite thanks for having me that's all for this week's markets, update on exchanges I'm in in case you MR check out or other episode the sweet with Susie sure of our message. Banking vision is well on how companies are meeting their financing needs for listening and help everyone has a safe and healthy. We can. This podcast was recorded on Friday on the seven
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Transcript generated on 2021-07-03.