Hartford Business Journal

15 Hartford Business Journal | April 5, 2021 | HartfordBusiness.com are preferable to standard acquisitions in which an out-of-state company might buy a Connecticut firm and move some of its functions to a new location. "In an IPO they tend to stay here," he said. William Fish, a Hartford partner at law firm Hinckley Allen, which has worked on several SPAC transactions in Massachusetts, said some of his Connecticut clients are sniffing out possible deals with blank-check companies, drawn by potentially higher valuations that allow companies to access more investor capital. "Because SPACs seem to be driving up the revenue multiples, they are thinking 'wow, maybe we shouldn't be waiting, let's test the waters and see what kind of numbers we get,' " Fish said. Many predict the high valuations will eventually lead to a market correction that will drive down some SPAC share prices, but it remains to be seen how individual companies might be impacted. Even McCooe, who is bullish about CI's specific SPAC holdings, sees it coming. "SPACs will be subject to the whims of the public markets," he said. "I think it's fair to say SPAC stocks will be hurt in the next 12 to 24 months." While there are only a few SPAC deals in Connecticut, there are plenty of blank-check companies that have formed in the state, mainly in Fairfield County, a hub of private equity and hedge funds. According to an analysis of U.S. Securities & Exchange Commission filings, there are at least 15 SPACs that have formed here in the past two years. One is in New Haven. Thimble Point Acquisition Co. raised $240 million in a February IPO. The SPAC is tied to the Pritzker Vlock Family Office, which was founded by billionaire philanthropist and Hyatt hotel heir Karen Pritzker. Growth path David Ethridge, U.S. IPO services leader for Big Four accounting firm PwC, began to take note of growing SPAC transactions in 2019, which saw 60 deals and about $12 billion raised in total. "To me at the time, that was kind of zany because it was five times what I'd ever experienced as a capital markets professional in the past," Ethridge said. Then came 2020, and the global COVID-19 pandemic. Major companies began pulling their earnings guidance as the future became impossible to predict. Meanwhile, interest rates plummeted and the government flooded the economy with stimulus money. Amid that extreme uncertainty, SPACs offered investors what appeared to be a safer bet with more upside, Ethridge said. That's because investors can pull their capital if they ultimately dislike a SPAC's acquisition target. SPAC investors are also largely making a bet on seasoned management teams. "It was kind of the perfect product at the perfect time," he said. The dynamics that emerged in 2020 continue at an even stronger pace in 2021, with almost 300 SPAC IPOs already completed, compared to 248 in all of 2020. "These are really historic numbers," Ethridge said. The deal flow — including from celebrities like Shaquille O'Neal and Alex Rodriguez who are advising or launching SPACs — has caught the attention of regulators. In late March, Reuters reported the SEC had opened an inquiry into the SPAC boom, asking Wall Street banks about their dealings with SPACs and how underwriters are managing risks involved. With many more SPAC stocks on the market, Ethridge said he will be watching how they perform. In recent years, post-merger SPAC stocks have underperformed the overall IPO market, according to Greenwich-based Renaissance Capital. "Let's see how this plays out over time," Ethridge said. "The hope from folks like me who are capital markets professionals is that you'll have a product with a SPAC that's more durable than it's been in the past." Bioscience legend Rothberg, a chemical and biomedical engineer, is a bioscience legend in his native state of Connecticut, having founded companies such as CuraGen, Ion Torrent and 454 Life Sciences, which eventually sold for a combined $609 million. More recently, he has led his smart medical device accelerator, known as 4Catalyzer, which has birthed eight companies, including the recent SPAC merger targets Butterfly Network and Quantum-SI. Those two companies grossed combined proceeds of more than $1.1 billion, which Rothberg said was likely more than they would have raised through the traditional IPO process, based on average results for similarly-sized firms. Rothberg's companies could have gone public through a traditional IPO, but he said that process would likely We help guide your business like it is our business. Meet our team at bankatpeoples.com/businessteam Big-time business solutions. That's huge Member FDIC/Member DIF 2020 2021 ytd Total SPAC IPOs 248 296 Total IPO proceeds $82.97B $95.87B 2020 was called the year of the SPAC, but 2021 has already blown it out of the water when it comes to SPAC IPOs. Source: SPACtrack.net Record-breaking year for SPACs David Ethridge

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