Gores Group has raised its largest special purpose acquisition company, or SPAC, offering to date. The Beverly Hills-based private equity firm closed Gores Holdings V at $525 million, up $50 million from its initial target.
Like all SPACs, the latest Gores vehicle was priced at $10 per share.
SPACs, also known as blank-check companies, are business entities that have no operations of their own. They are created to raise funds through initial public offerings. Managers then use the funded vehicle to acquire a target business looking to go public in a reverse merger.
Gores Holdings V is the sixth SPAC raised by the Gores Group. The firm’s first play in the emergent space was a 2015 vehicle used to acquire Hostess Brands Inc. in a transaction valued at $2.3 billion.
In 2018, a $400 million vehicle was used to buy smart mobility technology company Verra Mobility Corp.
Both of those deals delivered solid returns before markets were upended by the Covid-19 pandemic.
In its third SPAC, Gores acquired PAE Inc., a government contractor, from fellow Beverly Hills private equity firm Platinum Equity in February. PAE now trades slightly below its initial IPO price, although the deal is likely too recent to draw meaningful conclusions from its performance.
Gores Group has raised two other SPACs — Gores Metropoulos and Gores Holdings IV — which have yet to announce acquisition targets.
The firm’s decision to concurrently launch a third open SPAC was based on anticipated higher demand from investors and target businesses, according to Gores Group’s SPAC lead Mark Stone.
“The market of sellers that are interested in exploring going public by a SPAC has increased dramatically,” Stone said. “We want to capture that demand.”
Until recently, SPACs were somewhat obscure investment vehicles. A recent spate of high-profile deals, such as those involving space-tourism company Virgin Galactic Holdings Inc. and electric vehicle-maker Nikola Corp., has brought the approach onto the radars of more mainstream investors.
Stone said he saw several key factors in the rising prominence of SPACs.
First has been a growth in the number of “credible” sponsor firms. The entrance of these established players has helped build investor confidence and boost the availability of viable SPAC offerings, according to the Gores director.
“We were one of the credible sponsors in 2015. TPG (Group) was right behind us,” Stone said. “Since then you have seen more high-quality players enter the space.”
Second, Stone said, a general growth in awareness around SPACs in the business community has made investors less skittish about the vehicles.
“In 2015, when you talked to a seller, they didn’t know what a SPAC was,” he said. “They wanted to go for something they were more familiar with. … Now, there have been a number of high-profile transactions, so they are more open to exploring.”
Another central factor in the popularization of SPACs, according to Stone, has been the relative success — and lower risk — in many of these deals. SPACs typically allow businesses to go public more quickly and with less exposure to short-term market volatility than a traditional IPO. The greater certainty of funds early in the transaction has become especially popular amid the current widespread market uncertainty, according to Stone.
In an SPAC transaction, “the seller has certainty in the value,” Stone said. “That’s not the same as an IPO. If there is a disastrous election outcome right before you go public, you could really be affected.”
Although Stone is generally bullish on SPACs in the near-term, the Gores director said protracted volatility in public markets could lead to a culling in the space.
“In that environment you will see that, as public currency weakens, sellers will find private markets more attractive,” he said. “At that point, there will be a natural thinning.”
“I don’t know when that happens. It could be another year, two years,” he added. “No one can ever call a top or bottom.”
