The year 2020 has certainly become the year of the special purpose acquisition company, or SPAC. More of these "blank check" companies have gone public than all other IPOs combined. And with several highly successful SPAC mergers taking place recently, many more companies are trying to get in on the action.
We recently learned two big-name real estate firms, CBRE Group (NYSE: CBRE) and Tishman Speyer, have filed paperwork to form SPACs of their own. Here's a quick rundown of what investors need to know about SPAC investing and what we know about these two upcoming SPACs.
SPAC investing 101
A special purpose acquisition company, or SPAC, is a company specifically created for the purpose of acquiring a privately held company and taking it public. Many SPAC investors refer to this as "IPO 2.0," as it essentially replaces the traditional IPO process for the SPAC's acquisition target.
As a real-world example, a SPAC known as Social Capital Hedosophia Holdings II (NYSE: IPOB) raised a little over $400 million and recently entered into a merger agreement with real estate tech company Opendoor (OTC: OPNDF), valuing the combined company at $4.8 billion.
When a SPAC goes public, it does so without any business activities whatsoever. The only purpose of the company initially is to raise capital with which to make an acquisition; hence the common nickname "blank check" company. SPACs typically sell "units" to investors, which consist of a share of common stock and some fraction of a warrant to buy more common stock at a predetermined exercise price within a few years. Within a few months of going public, the units separate into shares and warrants and begin trading separately.
SPACs generally have a certain window of time (typically from 12 to 24 months) in which to identify an acquisition target and agree to merger terms. If no such deal is reached, capital is returned to the SPAC's investors and the company is dissolved.
Two upcoming real estate SPACs
With all of that in mind, here's what we know about two upcoming SPACs being formed by major real estate firms.
We'll start with CBRE, the more recently announced of the two. The largest real estate services firm in the world, CBRE plans to complete an IPO for a newly formed SPAC called CBRE Acquisition Holdings. It aims to raise as much as $400 million in its IPO.
CBRE Acquisition Holdings aims to "identify and acquire a privately held company with significant growth potential," according to a regulatory filing, and plans to leverage its industry-leading position to give it an advantage with finding a target, as well as help them to grow. And it plans to focus on companies that can provide products or services to CBRE's clientele, so it would likely be either a real estate or real estate-adjacent business.
CBRE's SPAC plans to go public with an offering price of $10.00 per unit, which will each consist of one share of Class A common stock in the company, as well as one-fifth of a warrant to buy a share at an exercise price of $11 within five years of a business combination.
Meanwhile, Tishman Speyer, one of the largest landlords in the United States, filed registration paperwork for a SPAC of its own, called TS Innovation Acquisition Corp. (NASDAQ: TSIAU), which went public on November 10. It raised $300 million and plans to pursue an acquisition of a company that would be a nice strategic partner of Tishman's core business.
TS Innovation Acquisition went public at an offering price of $10.00 per unit, which consists of one share of common stock and one-third of a warrant to buy an additional share at $11.50 within five years. As of this writing, shares are still trading for almost exactly $10.
Should you invest?
There's no perfect yes or no answer here. The key takeaway when considering a SPAC investment is that by purchasing shares (or units), you're essentially betting on the management team's ability to find a deal and/or add value to a potential acquisition target. So if you're a fan of either of these real estate companies and think they could potentially add significant value to a privately held company, they could be worth a look.