Bill Ackman: Spac failure leads to Sparc innovation

Bill Ackman is giving money back to shareholders. This week the hedge fund investor announced that his blank cheque vehicle, Pershing Square Tontine Holdings, would return the $4bn it raised two years ago, after failing to locate a suitable buyout target. He plans to keep looking. One day, he hopes, investors and their money will be back.

Ackman pitched PSTH as a unique Spac better aligned to the interests of ordinary investors than the tycoons who typically assemble blank cheque companies. But such innovation could not overcome a continued collapse in the Spac market.

Undeterred, Ackman intends to press ahead with another contraption he has invented, this time known as the Sparc. Here investors will give him cash for a deal only after he has picked out a target company. The “r” reflects a so-called rights offering.

Like other Spac sceptics, Ackman has criticised the traditional vehicle structure in which sponsors are granted 20 per cent of a Spac’s equity for free. This, he believed, distorted the incentive to find a good company at a good price. In PSTH, Ackman and his firm wanted to invest billions of dollars on identical terms to ordinary investors. PSTH had a separate feature to minimise investors exercising their right for refunds of their investment.

Ackman was convinced he had built a better mousetrap for reverse mergers. It is disappointing that there will be no verdict on that claim. But his Sparc gadget remains worth watching.

Around 90 per cent of companies that went public via Spac are trading below their listing price. A majority of investor dollars are being refunded before deals even close. Both statistics seem to confirm Ackman’s dim view on the conventional structure. PSTH holders will now be awarded rights to put their money into a company that it decides to acquire later on. That is, if Sparc is approved. These days, regulators are even more skittish about financial engineering than investors.