Chamath Palihapitiya Calls For SPAC Regulation, What Else Did He Say?: Report

One of the most well-known names in the SPAC market is pushing for regulation in an op-ed piece published by Bloomberg Thursday.

The SPAC Market: Chamath Palihapitiya called a SPAC a bet that the sponsor can find a high-value company to acquire and bring it public.

“When done well, it is an opportunity to unlock a high-growth company’s access to the capital markets and give it the capital it needs to scale for long-term growth,” Palihapitiya said.

Palihapitiya pointed out as of May 1, there are 406 SPACs seeking deals. A total of 21% of the SPACs seeking a target are trading below the $10 price point.

There are 127 SPACs that have announced deals and are in the SPAC merger process. A total of 37% of these SPACs are trading below $10 per share.

Changes Needed: Palihapitiya called for regulators to increase standard enforcements and protect investors.

“Government regulators should require the principal who is sponsoring a deal to commit personal capital in it,” Palihapitiya said, adding he would like regulators to force sponsors to underwrite deals with their own capital.

Of the 127 SPACs that have announced deals, only 48 have some form of sponsor investment. Only 10 of these deals have long-term commitments from the SPAC sponsors.

Palihapitiya would want to see a more detailed outline of how each deal comes together including insight into the pricing and valuation of SPAC deals.

“The current process is set up to force different SPAC sponsors to bid against each other under tight time deadlines.”

Palihapitiya suggests providing information if there were multiple bidders, who the bidders were and what the bids were. This public information could help with the valuation of companies going forward.

Many SPACs have a private investment in public equity, commonly referred to as the PIPE of a SPAC deal. Palihapitiya, who has been a participant in PIPEs on several deals, would like to see more protection for the investors including the ability to change the terms of the deal if the market changes.

“These investor protections already exist in private-equity PIPE deals and we need to see more of it in SPACs.”

Palihapitiya said this change could help protect PIPE investors and public shareholders.

“(Public markets) should be a place for all investors, on a level playing field, to participate in the growth of the economy.”

Related Link: 5 Things You Might Not Know About Chamath Palihapitiya 

Benzinga’s Take: The op-ed from Palihapitiya was discussed in the video clip above from Thursday’s episode of “SPACs Attack.”

Palihapitiya was seen as a huge voice in the SPAC community when SPACs were thriving. For months as SPACs fell out of favor, Palihapitiya remained mostly silent.

Some will question the comments from Palihapitiya after it was revealed as the chairman of Virgin Galactic Holdings Inc SPCE sold his personal stake in the company earlier this year.

The poor performance for Clover Health Investments Corp CLOV, short reports against the company and revised downward guidance have put a cloud over one of Palihapitiya’s high-profile deals.

Palihapitiya had previously announced plans to bring 26 SPACs public with tickers IPOA to IPOZ, but has not announced plans for anything after IPOF currently. 

Disclosure: Author is long shares SPCE and IPOF.

(Photo: Christopher Michel via Flickr)