Following a breakout year for special purpose acquisition companies (SPACs) in 2020, activity is forecast to remain brisk in 2021, with REITs expected to take a keener interest in the structure, according to Jocelyn Arel and Audrey Leigh, partners at Goodwin.
SPACs are a pool of capital formed through an initial public offering (IPO). SPAC sponsors go through the traditional IPO process, complete with Securities and Exchange Commission (SEC) review and roadshows, Arel, a partner in the firm’s Technology Companies practice and leader of the firm’s SPAC practice, explained. The capital is then placed into trust and is available to combine with an operating company and fund that company’s IPO, referred to as the SPAC-IPO.
“People are looking at the structure as an efficient way to take companies public and as an alternative to the traditional IPO or direct listings. In essence it’s really giving companies optionality in terms of how they want to approach the market,” Arel said.
While significant increases in the number of SPACs occurred between 2015 to 2020, last year “was really a breakout year,” Arel said. “There’s obviously a lot of excitement around the structure.”
Leigh, a partner in Goodwin’s Business Law Department and a member of its Real Estate Industry group, noted that “we’re definitely seeing the real estate industry take a keener interest in SPACs.” Many of the SPACs formed by real estate companies have been focused on transactions that would create synergies between real estate and proptech, she said, in addition to other business areas.
“REITs are also taking note of the recent SPAC activity,” Leigh said, noting that Simon Property Group (NYSE: SPG) recently filed for a SPAC.
“There’s a lot of cash available for investment and people are recognizing that SPACs are a good way for investors to get access to private companies, so we’re seeing this momentum and traction growing in the real estate sector as well,” Leigh said.
“We think we’re going to be seeing a lot more REITs taking notice and taking advantage of this market…we think SPACs are going to have staying power,” Leigh said.