Bill Ackman, Emil Michael And The Risk Factors Around SPACs

On Wall Street, as they say — you pays your money, you takes your pick.

To that end, as reported this week, DPCM Capital became only one of the latest special purpose acquisition companies (SPACs) to go public — continuing a “hot” trend that shows no signs of abating.

But the latest listing hints at the allure — and, we contend, risks — inherent in hitching one’s (investing) star to these investment vehicles, and by extension the people running them.

As Bloomberg noted, DPCM came public and raised $300 million, which is $50 million better than the tally that had been expected. The money raised by DPCM will in part go toward funding companies, tech companies in particular, with valuations in the $1 billion to $2 billion range (thus, unicorns, as they are commonly known in the investment world).

This time around, the figures at the helm of the SPAC are well-known. DPCM was formed earlier this month by Emil Michael, who had formerly served as chief business officer with Uber Technologies, and now serves as CEO of DPCM. Bloomberg has taken note of Michael’s “controversial” background, where he had in the past stated that he would use opposition research to investigate journalists that were critical of the ride-hailing company.

Other advisors to DPCM include Shervin Pishevar, who had been an early Uber investor and who had been accused by five women of sexual misconduct. Elsewhere, DPCM’s  chief financial officer, Ignacio Tzoumas, helms a scooter company  that is in turn backed by Pishevar. Eric Schmidt, former chairman of Alphabet, is listed in filings as an adviser to the firm. In addition, Kyle Wood, whose LinkedIn profile, Bloomberg noted, lists him as “consigliere,” is the chief legal officer at Sofreh Capital, which was co-founded by Pishevar.

For DPCM, for now, it seems a case of “hurry up and wait.” The S-1 filing with the Securities and Exchange Commission notes, “We have not selected any specific business combination target, and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target with respect to an initial business combination with us.”

But trust may be a sticky glue for investors. The filing also states that Michael has played a “pivotal role” in raising about $15 billion from investors globally, and led the merger of Uber’s China operations with Did Chiuxing. Other biographical information in the filing touts advisers’ and others’ talents and successes in raising funds and doing deals.

The filing states that “we are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, officers or directors.” Now: Leaving that option open does not mean that DPCM will automatically seek to do deals with companies that are tied to those individuals. But then again, the door is not closed to that possibility, which implies that private ventures steered, owned, managed by DPCM higher-ups may be, at some point, coming public.

And here, we may see the vagaries of SPACs come into play. It’s well known that the investment class is, well, hot — to put it mildly. Thus far in 2020, according to SPAC Insider, there have been 159 initial public offerings (IPOs) in the space, worth nearly $59 billion. That far outpaces the 59 IPOs seen in all of 2019 for a relatively muted $13 billion.

Along with that enthusiasm comes trust, on the part of retail investors, in the people running the newly formed blank check company — namely, to find acquisitions that will generate returns for the benefit of all holders. Success attracts investors: In only one example, billionaire hedge fund titan Bill Ackman broke records  by raising $4 billion for his own SPAC. The cult of personality, the desire to throw one’s lot in with people “who know what they are doing,” is palpable.

The wait may be long: Frequently, SPACs have as long as two years to do a deal, before investors can elect to redeem their funds (they also can vote down the proposed deals).

The end of the enthusiasm is not on the near-term horizon, it seems. In a recent panel discussion hosted by PYMNTS, investors said valuations are high — pretty much no matter where you look. But with particular focus on SPACs (and other pockets of capital market innovation), Doug Bergeron, managing partner at Hudson Executive Capital predicted “a lot of  money will run to them until there’s too much money in them.”