Billionaire investor Bill Ackman’s hedge fund is planning to raise $3 billion from the public in a bet on the boom in blank check mergers.
The initial public offering for Pershing Square Tontine Holdings would be the largest-ever for a so-called special purpose acquisition company. Ackman’s Pershing Square Capital Management would also invest a minimum of $1 billion, according to a prospectus filed on Monday.
SPACs are usually formed to raise funds through an IPO to finance a merger or acquisition, typically within two years. If a deal is not done in time, investors get their money back.
As a blank check company with a $4 billion war chest, the Pershing SPAC will provide an “attractive alternative to a traditional public offering for a substantial number of large capitalization, high-quality growth companies, particularly in the current highly volatile environment,” the prospectus said.
As Barron’s reports, SPACs are on pace for a record year in 2020, raising more than 75% of 2019’s record total already this year.
“Some of the year’s hottest stocks have been the product of SPAC mergers,” Barron’s said, citing electric and fuel-cell startup Nikola, online sports-betting site DraftKings, and spaceflight company Virgin Galactic, which all merged with SPACs to go public.
Pershing said it would target venture-backed companies that “have achieved significant scale, market share, competitive dominance, and cash flow.”
The market disruptions caused by the COVID-19 pandemic, “combined with a number of high-profile private investment failures and disappointing IPO outcomes, have substantially reduced the amount of private funding available for these companies, while demands for liquidity from their investors have increased,” it said.
According to Reuters, the SPAC IPO will enable Ackman to compete for a big acquisition against some of the largest private equity firms.
“The theory has been up to now you don’t want to get too big as a SPAC because then you’re competing with all the private equity firms for assets,” said Douglas Ellenoff, partner at law firm Ellenoff Grossman & Schole LLP. “He’s saying, ‘Bring it, we’re prepared to compete.’”
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