Former Goldman Sachs CEO Lloyd Blankfein sees ahead of SPACs, special-purpose acquisition companies that are used to make companies public.
While the SPAC trend shows no signs of cooling amid high demand for shares of new companies, investors need to be careful, Blankfein told Squawk Box on Monday. According to Blankfein, the SPAC process circumvents the rigorous due diligence of the normal IPO process.
“You’re making companies public, but you’re making them public in a two-step process where one of the elements of a IPO comes out,” Blankfein said.
“When the initial SPAC is made public, you are examining a parent company, possibly the reputation of the sponsor,” he continued. “When this company dismantles SPAC and mergers, it’s a merger, it’s not a IPO that carries a lot of due diligence obligations.”
SPACs have been around for years, but their popularity exploded last year. SPACs raised $ 64 billion by 2020, almost as much as traditional IPOs, according to Renaissance Capital.
Blankfein, who as Goldman’s former CEO led one of Wall Street’s top IPO advisers for more than a decade, suggested that SPAC participants were not encouraged to avoid overpaying their businesses. goal. This could lead to situations where “some people make a lot of money and investors lose money,” he said.
“In the absence of diligence, that will be what will happen,” Blankfein said. “There will be things that will go wrong.”
The biggest backdrop is that the behavior seen in SPACs and other areas such as bitcoin are signs of “bubble elements” due to the central banks’ reaction to the coronavirus pandemic, a point Blankfein has stated in the past.