Bill Ackman during an interview with Bloomberg Television on November 1, 2017. Billionaire investor William Ackman, who has raised $4 billion in the largest special purpose acquisition company (SPAC), told investors that he would return the amount after failing to find a suitable target company for an IPO through merger.
Christopher Godney | Bloomberg | Getty Images
Billionaire investor William Ackman, who raised $4 billion in the largest ever Special Purpose Acquisition Company (SPAC), told investors he would return the amount after failing to find a suitable target company for an IPO through the merger.
The development represented a major setback for a prominent hedge fund manager who had initially planned for SPAC to acquire a stake in Universal Music Group last year when these investment vehicles were rife on Wall Street.
In a letter sent to shareholders on Monday, Ackman highlighted several factors, including adverse market conditions and strong competition from traditional initial public offerings (IPOs), that have frustrated his efforts to find a suitable company to merge SPAC with.
Ackman said, referring to his SPAC barcode.
In July 2020, Pershing Square Tenten raised $4 billion in its initial public offering and attracted prominent investors from the Baubost Group hedge fund, the Canadian pension fund Ontario Teachers and the mutual fund company T. Rowe Price Group.
SPACs, also known as blank check companies, are exchange-listed cash shells created by large investors – known as sponsors – with the sole purpose of merging with a private company. The process, which is similar to a reverse merger, takes the target company to the public.
SPACs peaked during 2020 and early 2021, helping generate hundreds of millions of dollars in paper profits for a number of notable SPAC originators such as Michael Klein and Chamath Palihapitiya.
However, over the past year, companies that merged with SPACs have performed poorly, forcing investors to avoid blank check deals. Combined with tougher regulatory scrutiny and a downturn in stock markets, this has virtually shut down the SPAC economy, with several billion dollars at stake.
Moreover, the record performance of initial public offerings in the United States in 2021 posed competitive challenges for SPAC sponsors such as Ackman, with many high-value startups choosing to list their shares on stock exchanges through traditional methods instead.
“The rapid recovery of capital markets and our economy has been good for America but unfortunate for PSTH, as it has made the traditional IPO market a strong competitor and a preferred alternative for high-quality companies seeking to go public,” Ackman said.
In July last year, Ackman efforts to acquire a 10% stake in Universal Music Which was spun by the French media conglomerate Vivendi, through its own SPAC derailed due to regulatory hurdles. The US Securities and Exchange Commission objected to the deal and Ackman put the investment into his hedge fund instead.
“While there have been transactions that were potentially actionable for PSTH over the past year, none have met our investment criteria,” Ackman said.
“Typical beer advocate. Future teen idol. Unapologetic tv practitioner. Music trailblazer.”