Special purpose acquisition companies aren't new, but they have caught fire as a fundraising tool poised to consume investment opportunities for private equity, venture capital and growth equity managers.
Everyone from athletes Colin Kaepernick and Shaquille O'Neal, former House Speaker Paul Ryan to brand name alternative investment firms including Blackstone Group Inc., Ares Management Corp., KKR & Co. Inc. and Apollo Global Management Inc. have SPACS.
"Obviously, there is a little bit of a SPAC frenzy," said Michael Arougheti, Ares co-founder, CEO and president, said during a Feb. 10 earnings call.
Ares' SPAC, Ares Acquisition Corp., completed its initial public offering Feb. 4, generating gross proceeds of $1 billion. This will be the first of many as Ares executives expect SPACs will be a "new product line" for the firm, Mr. Arougheti said.
"It reminds me a little bit of what we experienced when we launched our BDC (business development company) 15 years ago … when there was a similar frenzy" but then the business matured, Mr. Arougheti said.
"Clearly, the liquidity in the market is driving a lot of issuance, and I think we're going to see dispersion in performance over time," he said.
What's more, with fewer public companies than private companies, retail investors had been "crowded out" and have an appetite for companies they didn't have access to before, Mr. Arougheti said.
But while he said SPACs would add to Ares' business, they "will chip away a little bit at the aggregate market opportunity for PE (private equity) when you just look at the amount of capital searching for transactions and candidly, it will also chip away a little bit on the venture side and the growth equity side as well," he said. "But I think plenty of opportunity is out there, and we're just going to have to see how it all plays out."