THE ISSUE WITH SPACs
The King of SPACs Doug Ellenoff, the founder of one of America’s leading SPAC law firms, explains the wildly popular investment vehicle. BY GARRETT BALDWIN
The conversation was edited lightly for style and brevity.
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Let’s start with your business. What’s a law firm’s due diligence process with a SPAC? How do you evaluate prospective clients?
It’s an easy conversation in the SPAC market because you’re attracting established financial players in the private equity or venture world, or executives of significant private or public companies. It doesn’t require a lot of diligence. It’s a bit more complicated when the deals are international and we have to consider the team. SPACs have become popular even though a stigma was attached to them just 10 or 15 years ago. What’s made SPACs mainstream?
Let me first say I don’t believe the stigma of SPACs is over. We’re certainly in a better place. But if the private companies that went public in the last eight months fall on hard times, I’m confident those who are predisposed to dislike SPACs will point fingers again. It’s a default reflex to find fault in SPACs. The growth of SPACs didn’t happen overnight with Virgin Galactic or Bill Ackman or DraftKings. It was the hard work of lawyers, accountants, investment bankers and principals who iterated the program coming into 2020. Those successes—with fewer failures in a bull market—admittedly led to a dissipation of the concern and negativity that regulators and law firms had put out in the early years. When Virgin Galactic and then Bill Ackman had success, those who had been monitoring the program with skepticism started scratching their heads and thinking “I don’t understand why people were saying such negative things about SPACs.” Is Bill Ackman’s decision to waive the 20% SPAC sponsor fee important to the shift in perception?
PHOTOGRAPH: COURTESY DOUG ELLENOFF
To understand the substantial value of SPACs, or special-purpose acquisition companies, Luckbox ignored the noise and went straight to the source—the law firm of Ellenoff Grossman & Schole. For 25 years, the attorneys there have specialized in SPACs, initial public offerings (IPOs), registered direct/private investment public equity (PIPEs) and reverse mergers. In the last decade, the firm has engaged in nearly 40% of all new SPACs. It led the SPAC IPO Legal League Tables for 2020 and ranked No. 1 of 17 firms in terms of deal flow. In 2020 alone, the firm worked on 70 SPACs. It has completed at least 325 SPACs over 18 years. So, they know what they’re talking about. In this interview, Doug Ellenoff, a founding member of the firm, discusses the misconceptions that cloud the public’s understanding of SPACs, the market incentives that drive investment capital into private vehicles and the factors that make SPACs a favorable strategy for investors.
Luckbox | May 2021
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4/9/21 11:56 AM
