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The Rise of SPACs, Virtual Due Diligence and 2021 Outlook

2020 Review and 2021 Outlook – an exclusive interview with Craig Clay, President of Global Capital Markets, DFIN with DealStreetAsia

In conversation with DealStreetAsia (DSA), Craig Clay, President of Global Capital Markets, DFIN discussed how the US election will impact dealmaking, the rise of SPACs, virtual due diligence and how having a risk and compliance solutions partner can smoothen the path to an IPO and beyond. Here are some excerpts from the interview:

DSA: Can you please give us your perspective on how the recently announced results of the US elections are likely to affect deal making through the next year and beyond?

Craig: Following the post-election period, it appears the US will have a divided government, and the market loves it. President-elect Biden is forming his various teams, including his economic team, and I expect that monetary policy won’t change. The market has several backstops – the fiscal stimulus (which will ultimately happen again), the Fed standing by to pump additional money into the economy, and also the proven resilience of corporate America - the speed at which many companies are recovering from the Covid-induced downturn, even as the pandemic continues to weigh on the broader economy is incredible.

Those actions will only reinforce investor confidence that there will not be a dramatic change in policy.

We’ve experienced challenging times before and have made it through and as we’ve seen so far, December will be a very strong month for IPOs, highlighted with Airbnb and Doordash here in the States.

DSA: SPACs (special purpose acquisition companies) have been on an upward trajectory. Is this likely to be a trend through at least the early part of the next decade?

Craig: SPACs have become not just a viable vehicle but a place where the combination of management teams, great ideas and money can create an entity that can then pursue acquisitions. They have become the darling of the capital markets because they are efficient and effective.

SPACs will make up 50 per cent of total IPOs in 2020 and in fact, this year’s total will exceed 2019, which was also a record year. Through October, we had more SPACs than we had in the entirety of 2019. As of mid-September 2020, 95 SPACs -- with a valuation of approximately $35 billion -- had priced year to date, shattering all previous records. While we expect to see a pause in 2021 as deals are digested, activity should still exceed pre-2020 levels.

For the full year of 2019, 59 SPACs had priced, and even this represented a sizeable increase over 46 in 2018 and 34 in 2017. SPACs in Asia have grown eightfold since 2015.