Bill Ackman had big plans for his blank-check company, and so he should have: It is, after all, the biggest special purpose acquisition company of all time at $4 billion, and that requires an unusually large “attractive unicorn.” Bloomberg, perhaps, or Airbnb. Something to really knock the socks off who ponied up $20 for the pleasure of seeing what the great Bill Ackman would do with it.
The answer, as it turns out, is both smaller and bigger than expected, more boring and also potentially more transformative. For, it turns out, $4 billion may in fact be too big for a SPAC, especially when there are so many hundreds of others out there desperately seeking a dance partner before the clock strikes two-year deadline. So Ackman is turning his SPAC into something else. Rather than merge Pershing Square Tontine Holdings with the aforementioned “very attractive unicorn,” he’s going to use about three-quarters of its money to buy a 10% stake in a record company (imagine writing those words 20 years ago), which will then proceed with its plan to list publicly later this year. And then he’ll keep looking for another “very attractive unicorn” to actually merge into PS Tontine, using both the remaining $1.5 billion—now time-unlimited, thanks to the Universal Music deal—and money that investors therein can choose to put into the next deal should they like it, thereby creating something shiny and new.
He’s also creating something new entirely: a SPARC, or special purpose acquisition rights company.
Unlike a SPAC, where investors blindly pledge capital to acquire an unknown company, the SPARC won’t ask for money just yet. Ackman will seek out another acquisition target, and tell his investors what it is. If they like the prospective deal, they can pony up cash to fund it.
The SPAC’s investors will also get rights to invest in the SPARC, which when combined with Pershing Square’s money could create as much as $10.6 billion in financial firepower for dealmaking.
It’s a neat piece of financial engineering that lets Ackman parlay his initial SPAC into several deals. And in many ways, the SPARC structure is kinder to investors than the SPAC, since it gives them more visibility into what they’re actually buying, won’t incur big underwriting fees and isn’t subject to the same two-year limitation that SPACs have to find a target.
Truly, a lasting and fitting monument, a financial Medici Chapel, if you will, to the period in time historians will inevitably refer to the Ackmanaissance.
The SPAC Is Dead. Meet Bill Ackman's SPARC [Bloomberg]
Ackman’s SPAC Deal to End All SPACs [WSJ]
William Ackman SPAC Nears $40 Billion Universal Music Deal [WSJ]
Bill Ackman sees Universal Music SPAC deal closing later this month [CNBC]
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