Easy credit, lofty equity valuations and a weak economy are all pointing to investors getting burned. The 2020 SPAC frenzy is further evidence of market excess.
Billy Beane the baseball GM is a partner in a SPAC that will pursue SportsTech acquisitions. Former hedge fund managers, former VC’s, even former operators who were not known for their operating prowess are getting in on the SPAC game. For every qualified M&A-oriented executive such as Bill Foley there are 50 SPAC managers who are preparing to burn investors without necessarily having that intention.
There is simply too much capital chasing too few quality opportunities. Approximately 4,100 Private Equity firms in North America and another 2,100 in Europe with $3-plus trillion of assets are already canvassing the globe for acquisitions. Add to this mix strategic acquirers and the result is a hyper-competitive M&A landscape.
SPACs with only $50-300 million and limited time horizons to execute deals are going to end up overpaying to acquire small Technology companies that are not ready to face the scrutiny of the public markets. Their results will be less than predictable as will the valuations of their shell company managers. Few will earn a respectable ROIC. Hyperbole (see video below) is not currency.