SPACs or special acquisition companies have emerged as a hot sector of finance. Recently, Bill Ackman’s Pershing Square announced a $4 billion initial public offering for a SPAC making it the largest ever for a blank check company. The SPAC is anticipated to have a minimum of $5 billion in equity capital and as much as $7 billion if all forward purchases are made. Ackman’s SPAC, Pershing Square Tontine Holdings, is looking for “mature unicorns” to possibly acquire. It was also interesting that Ackman is committing Pershing’s own capital to the SPAC said to be from $1 billion or higher.
Year to date, there have been approximately 43 SPAC IPOs raising over $14 billion according to reports. Barron’s said the “SPAC boom” has shifted “into overdrive.” A SPAC can be a fast track to a public listing and immediate liquidity.
Recently, the hot SPAC market has been married to the hot Fintech sector with Fusion Acquisition Corp‘s (NYSE:FUSE.U) initial public offering (IPO) on the NYSE that raised approximately $350 million.
Fusion Acquisition Corp. is a blank-check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, etc. with one or more businesses. Fusion intends to focus on businesses with an enterprise value of approximately $750 million to $3 billion in the Fintech or asset and wealth management sectors, according to a public statement.
Fusion benefits from the experience of CEO John James who founded Singapore based BetaSmartz, a global Fintech business serving financial services organizations. Prior to founding BetaSmartz, James co-founded Boka Group, an emerging market fund management and sovereign advisory company. The company’s Chairman is Jim Ross who is currently a senior advisor to State Street. Ross was most recently an executive VP of State Street Global Advisors and chairman of the global SPDR exchange-traded fund retiring in March 2020.
Ross recently told MFWire they are not looking for a turnaround but a good management team that can use their support. Ross said the want to bring a “really good transaction to the marketplace – and have the ability to go back to the investor base and do Fusion 2 … you do that by executing flawlessly.”
Last week, Kelly Driscoll, a board director of Fusion Acquisition Corp, spoke about looking at investing in a Robo-advisor. Speaking to Bloomberg, Driscoll said they are interested in Fintechs beyond Robo-advisors. Driscoll said they see Fintech possessing the ability to reduce costs, become more efficient, and better serve the customer. She added that COVID has changed the way we are living
Asked if they had some companies on their radar, Driscoll avoided answering the question.
In the S-1 filed with the SEC, Fusion said they do not intend to limit themselves to one segment of Fintech but highlighted wealth management as an area ripe for opportunity. To quote the document:
“The wealth industry, for example, has attracted the attention of private equity investors due to its steady growth, high-profit margins, consistent cash flow, and low capital requirements. M&A across the vertical remains a principal path to solving strategic challenges and repositioning businesses for growth. 2019 saw record levels of transaction activity with 265 announced transactions versus 262 in the previous year. Both years surpassed the prior high of 243 acquisitions in 2007. The 2019 transactions included 56 traditional asset manager sales, 61 alternative asset manager sales, and 148 private wealth manager sales. 2019 deal activity was spread across firms with different sizes of assets under management (“AUM”): including 124 transactions of wealth managers with AUM up to $25 billion, 8 acquisitions of firms with between $25 billion and $100 billion of AUM, and two deals with managers of more than $100 billion of AUM.”
Citing a McKinsey report, Fusion noted that wealth management totaled $13 trillion in 2000 but jumped to $19 trillion ten years later.
“There were about 420,000 advisors in the US and Canada in 2010. By 2018, client assets increased 64% compared to 2010, reaching about $30.5 trillion, and while the total number of advisors remained largely unchanged, the advisor workforce aged materially; in the US, only 25% were under the age of 44, compared to 33% in 2010.”
Thus the future is pointing in a digital direction.
Crowdfund Insider reached out to a Fusion spokesperson and they said that SPACs offer a direct alternative path to the public markets. A traditional IPO can often be limited to fewer, larger, and older companies. A SPAC provides speed and certainty to a public listing. There is no long, disruptive IPO process. There is price certainty and a path to monetization and liquidity.
The individual did not comment on the timing of their first acquisition but did say there was no specific geographic mandate as the CEO is based in Australia.
Valuations in later stage Fintechs have mostly held up fairly well in the Coronavirus reality but there could be some opportunities to scoop up a smaller, successful firm or perhaps bundle a few together. It will be interesting to see which company Fusion picks up first. We should know more within the coming months.
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