Family offices aim for 800% profitability with SPAC Economics

Photographer: Stephen Lovekin / Getty Images

The Pritzkeris built an empire that covered hotels until production, before agreeing two decades ago to divide their wealth among 11 descendants.

Karen Pritzker, one of the heirs, turned this fortune into venture capital, supporting companies such as Snap Inc. and Spotify Technology. He has now joined the wave of investors heading for unverified companies.

Pritzker Vlock Family Office is the main investor for Thimble Point Acquisition Corp., a special purpose procurement company that raised nearly $ 300 million in an initial public offering in February. Executives at the family office, named after Pritzker and her late husband Michael Vlock, lead the company, which will focus on software and technology.

“It allows us to make companies public and complete the entire life cycle,” said 40-year-old Elon Boms, executive director of Thimble Point and general manager of the family office, which hired $ 50 million SPAC before IPO.

Increasing strength

The SPAC boom attracted financiers, former politicians, athletes and celebrities willing to use their fame to attract retail and institutional investment. About 600 check-free companies have raised more than $ 182 billion since early 2020, according to data compiled by Bloomberg.

But family offices – discreet, sometimes secretive firms that run the business of the ultra-rich – have been one of the biggest driving forces.

While large family offices have invested heavily in private equity and real estate, the recent wave of SPAC betting shows how they are becoming a growing force in public markets. This comes at a time when some critics are pushing for greater regulation of investment firms following the implosion of Bill Hwang’s Archegos Capital Management, which has caused billions of dollars in losses to banks.

Family offices are largely exempt from registration with the US Securities and Exchange Commission, but SPACs must submit to the regulator, providing information on how billionaires manage their money.

Family offices and related firms have launched – or sponsored – at least a dozen SPACs that have raised about $ 4.5 billion in the past year, with another $ 1 billion in pending bids, according to data compiled by Bloomberg.

Oh, the light of the stars

Former hedge fund manager Dan Och has been particularly active with Willoughby Capital. The New York-based company has invested in a blank check company targeting the Chinese consumer industry and also owns a stake in Thimble Point, according to a person familiar with the transaction. A SPAC he sponsored, Ajax I, is merging with the UK’s second-hand car platform, Cazoo, in a deal valued at about $ 7 billion.

Barry Sternlicht’s family office is affiliated with the creation of six SPACs. Meanwhile, an empty-checking firm set up by a co-founder of Michael Dell’s family office raised nearly $ 600 million in IPOs last month.

Most SPACs were created in the US, but the trend has become global. Black Spade Capital, the family office of Hong Kong-based casino mogul Lawrence Ho, has taken action. Man Capital, a London-based billionaire from Mohamed Mansour, invested in Grab Holdings Inc., South Africa’s most valuable startup, before announced $ 40 billion on Tuesday.

Wealthy families even join forces. NNS Group, Egypt’s Nassef Sawiris family office, has teamed up with an investment firm for the Frere and Desmarais families to launch Avanti Acquisition Corp., which targets European businesses after raising $ 600 million through its US offering .

‘Very active’

“Sophisticated family offices have been very active,” said Luigi Pigorini, head of Europe, the Middle East and Africa at Citi Global Wealth. “They have incredible connections, knowledge and investment capabilities – all of which are important features.”

SPAC mania shows signs of wear and tear with clogged trading lines, increased regulated control and concerns about the quality of transactions that have been made.

Sternlicht, the real estate titan, joked that a member of his internal staff – “his very talented house manager” – could probably issue a SPAC. He told CNBC last month that “if you can walk, you can make a SPAC” and pointed out that many of the people behind empty check companies are failed money managers or directors.

“Three days of due diligence means checking the header and finding out if the company exists,” Sternlicht told CNBC. “It simply came to our notice then. No, he is much out of control. “

But Sternlicht is convinced he has the secret sauce. Jaws Spitfire Acquisition Corp. merges with Velo3D, a maker of 3D metal printers, valuing the company at $ 1.6 billion. Jaws Acquisition Corp., another SPAC it supports, is merging with health care provider Cano into a $ 4.4 billion deal.

Bolster returns

Even if SPACs flounder, will not necessarily affect family offices that have already launched blank-check companies.

SPAC sponsors typically buy shares in companies they create at a fraction of the standard $ 10 price offered to IPO investors. They typically hold about 20% of the company’s equity with a blank check after it becomes public and can continue to sustain its performance by financing debt or shares and stock options.

The payment office of payment processing contractor Ed Freedman, for example, is linked to sponsor Stable Road Acquisition Corp., which agreed in October to merge with space carrier Momentus. The empty verification company, which has until next month to complete the transaction, requests the approval of the shareholders to extend the term.

If they invest fully, a group of shares that the sponsor has purchased for about $ 5 million will be worth more than nine times that amount – an 800% increase – even if the company’s share price remains at $ 10, according to the data. compiled by Bloomberg. Freedman’s family office also lent SPAC $ 300,000 and agreed to invest another $ 3 million at a price of $ 10 per share, the filings show. Stable Road closed Thursday at $ 10.56 per share.

A Stable Road spokesman declined to comment.

SPACs usually take up to two years to find a company to purchase. If they fail to do so, they must return to the investors cash plus interest, while the sponsor loses their initial investment.

Thimble Point’s Boms said it began considering a SPAC about a year ago after trying to make companies public through reverse mergers. He said he had more than 100 meetings with prospective acquisitions from the company’s IPO. Of the approximately 600 SPACs listed since the beginning of last year, less than a third have announced transactions and about 30 have closed, according to data compiled by Bloomberg.

“We have a very, very solid list of hits,” Boms said. “We’re talking to people right now.”

– With the assistance of Tom Maloney and Michael Hytha