Palihapitiya, 'King of SPACs,' Makes an Ominous Move

(TheStreet) - One financial frenzy seems to have died down. 

Special-purpose-acquisition vehicles, or SPACs, had been seen as the streamlined answer to the administrative morass that is a standard initial public offering.

SPACs are no longer trendy. And it's their king who has so decreed. 

Star venture-capital investor Chamath Palihapitiya, an early executive at Facebook  (META) , almost three years ago helped make SPACs the buzzword in business circles.

On Oct. 29, 2019, Sir Richard Branson's space tourism company, Virgin Galactic  (SPCE) , made a grand entrance on Wall Street after merging with Palihapitiya’s venture, Social Capital Hedosophia.

A SPAC, also known as a blank-check company, raises money to acquire an existing business and take it public. 

The hardest part is finding the right company. In the case of Virgin Galactic, Palihapitiya's company had acquired 49% of the firm and enabled it to become the first space-tourism company to be listed on a stock exchange.

Liquidation of Two SPACs

For its grand stock-market debut, Virgin Galactic had been applauded by investors: During the first trading session, the shares touched a gain of more than 10% over their introductory price of $11.75.

This success was also explained by Palihapitiya's eloquence on television shows and in media interviews. He managed to easily convince investors that SPACs were the future and traditional IPOs were the past.

A SPAC "actually allows you to raise a really large amount of money, to go to a broad base of institutional investors, and it allows you to tell them what you think the future can look like," the investor told TechCrunch in October 2021.

He was then dubbed the "Pied Piper of SPACs” by The New Yorker and the "King of SPACs” by Bloomberg after he raised money for at least 10 SPACs.

Today, Virgin Galactic's shares are trading around $5, half where they were. This fall results not only from investors' concerns about the economy's health but also from the slump in SPACs that's been going on for several months.

Palihapitiya himself seems to confirm this. He's just said that he was going to shut down two SPACs that had raised $1.15 billion and $460.7 million respectively, according to regulatory filings. And that's because the SPACs did not find suitable companies to take public.

"Today, we started the process of winding down IPOD and IPOF," the investor said in a Sept. 20 blog post that you can read here

"This means that the funds raised by IPOD and IPOF will be returned to their respective shareholders."

"Over the past two years, we evaluated more than 100 targets, and while we came close to doing a deal several times, we ultimately walked away each time for a couple of reasons," he added.

No Suitable Target

He explained that neither of the two blank-check companies found a firm with an acceptable valuation, and the managements of the companies approached were unwilling to go public in the current volatile conditions.

By Luc Olinga
September 21, 2022


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