Special purpose acquisition companies keep drawing in high-profile supporters, including Bill Ackman, Gary Cohn and "Moneyball” star Billy Beane. A new name will soon be added to the list of so-called SPAC sponsors: Masayoshi Son.
The billionaire’s SoftBank Group Corp. disclosed Monday it plans to set up one of the controversial vehicles in the next two weeks. In doing so, SoftBank will bring together the latest craze in capital markets with one of the more eccentric minds of the technology world. Son’s experiments, from the $100 billion Vision Fund to high-leverage options trading, have had mixed results.
SPACs have been criticized as a more expensive way of taking companies public than traditional initial public offerings and linked to froth in valuations as stocks reach dizzying new heights.
But SPACs can also allow experienced sponsors to help guide growing companies that may benefit from their expertise. For Son, who has backed hundreds of startups in his career, creating such a vehicle may give him a new way to invest in nascent companies while tapping the surging public markets for money.
"SoftBank is making the maximum use of the capital markets,” said Kazumi Tanaka, an IPO analyst at DZH Financial Research Inc. in Tokyo. "Son has name value, so it won’t be difficult for them to raise money through a SPAC.”
SPACs have soared in popularity this year, with more than $40 billion raised on U.S. stock exchanges. Investors put their money into what is essentially a shell. Then the SPAC manager chooses a company, typically one that’s private, and pursues a merger that lets the startup go public and inherit the capital raised.
Rajeev Misra, who heads the Vision Fund and first disclosed the initiative, said SoftBank plans to invest money in a SPAC at the same time public investors put in their cash. The SPAC will be part of SoftBank Investment Advisors, the investment arm that houses the Vision Fund, and will target later-stage growth companies. The idea is to provide a path for a promising company to go public in the future, even if the markets turn rocky.
"It’s ideal for companies that were ready to go public 12 months from now and want to do it with certainty maybe six months earlier,” Misra said.
SoftBank is in talks with potential arrangers including Goldman Sachs Group Inc. and Citigroup Inc. about the SPAC listing, according to two people familiar with the matter. The Japanese company’s second Vision Fund could invest in the vehicle, one person said.
Investors could resist putting money into a SoftBank SPAC if they perceive opportunities for abuse. For example, they wouldn’t want Son to dump poor-performing startups into such a vehicle. The Vision Fund has backed scores of startups that are still private, including Didi Chuxing Inc., Grab Holdings Inc. and the notorious office-sharing firm WeWork.
"The market will lose confidence if a company like WeWork, which is money-losing but has high valuation expectations, lists its shares via a SPAC,” said Koji Hirai, head of M&A advisory firm Kachitas Corp. in Tokyo.
Misra didn’t comment on whether SoftBank would use SPACs to take public its own portfolio companies or whether it would create more than one such vehicle. Its investments also include promising startups like Korean e-commerce giant Coupang Corp., India payments pioneer Paytm and delivery provider Doordash Inc.
He did caution the vehicles can be abused and that investors need to pay careful attention to management talent, sponsor fees and other details.
Misra suggested SoftBank would look for opportunities to invest in new startups and would likely target those with valuations in single-digit billions. He gave a hypothetical example of a "good growth company” that wants to raise $1 billion at a valuation of $3 billion and later go public.
"We say we want to invest in you,” he said. "The deal is we’ll put in $500 million, we’ll raise $500 million in a SPAC fundraising. It’s just an investment in the company.”
One of the Vision Fund’s own companies, property technology firm Opendoor, said last month it was going public through a merger with a blank-check company led by Chamath Palihapitiya, a prolific SPAC manager.
In the end, Son’s ability to raise cash with the trendy vehicle will depend on how he performs for investors with his initial effort. If he can demonstrate he understands how to wield the tool of SPACs profitably, he can count on drawing more interest.
"SoftBank will need to build a track record,” said Tanaka of DZH. "They need confidence because investors won’t know what the SPAC will acquire in the future.”