February 18, 2021
Different reads on SPACs
Credit Suisse and Goldman Sachs were looking at the SPAC boom from different angles. Credit Suisse CEO Thomas Gottstein said demand remained strong in the U.S. and was increasingly appearing in Asia. He described blank-check companies as an alternative to private equity and traditional IPOs and said he did not see a short-term slowdown.
Goldman CEO David Solomon sounded more cautious. He said the SPAC ecosystem was "not without flaws" and suggested activity could eventually pull back or rebalance. The split is useful for recruiting because it shows that banks can participate in the same product cycle through different fee pools and risk appetites.
The numbers
SPACs raised a record $39 billion in the fourth quarter, more than ten times the amount raised in the same period a year earlier. Across the prior full year, more than 200 blank-check companies raised $80 billion. That exceeded the combined total from all earlier years and represented almost half of annual IPO volume.
Credit Suisse was the No. 1 adviser on blank-check IPOs in the fourth quarter, with 16.7% market share. Citigroup followed with 9.5%, while Goldman ranked sixth among global SPAC IPO advisers. Goldman was stronger in the later-stage transaction work, ranking as the top adviser on SPAC-related M&A with 36.2% market share.
Fee pools and risk
SPAC exposure is not one business. Banks can earn fees by underwriting the SPAC IPO, advising the SPAC while it searches for a target, advising the target, arranging financing, or advising on the merger that turns the SPAC into an operating company.
Credit Suisse was more exposed to issuance volume, while Goldman leaned more toward the back-end M&A opportunity. My view is that both strategies made sense, but both carried different risks. If IPO issuance cooled, underwriting fees could drop quickly. If too many SPACs chased too few good targets, the advisory side could face quality and execution problems.
Gottstein said activity in the first six weeks of the year was even stronger than the prior year, but he also said Credit Suisse was being selective. That caveat matters. In a product boom, banks are not only chasing revenue. They are also choosing which clients, sponsors, and transactions they want attached to their franchise.