Goldman Sachs has just closed its second billion-dollar special purpose acquisition (SPAC) company deal, with the nuclear measurement and analytics firm Mirion Technologies debuting on the New York Stock Exchange (NYSE) on Thursday (Oct. 21).
As CNBC reported, this move marks Goldman’s attempt to alter the struggling SPAC market by aligning investor interests with insiders.
In most cases involving SPACs, or blank check companies, the sponsors get 20% of the total shares outstanding following an IPO for free (or at a steep discount). But in the case of Goldman’s deal with Miron — valuing the combined company at $2.6 billion — sponsors will only receive their money when shares rise more than 20%.
“If you earn the promote upfront, there is always a bias toward stretching a little bit more on price and a little bit more on projections, because you are incented to get the deal done,” Tom Knott, head of Goldman’s SPAC business, told CNBC.
As the report notes, SPACs raise money on public markets without always having a vision of the companies they’ll eventually take public. They have been scrutinized for offering insiders cushy incentives, often at the expense of retail investors.
Read more: Sen. Warren, Others Seek Info From SPACs
Last month, Senator Elizabeth Warren, along with three other Senate Democrats, sent open letters to the most prominent dealmakers in the SPAC sector for more insight into the process.
“We seek information about your use of SPACs in order to understand what sort of Congressional or regulatory action may be necessary to better protect investors,” wrote the senators (Warren, Tina Smith, Sherrod Brown and Chris Van Hollen). The letter argues there has been “significant market dysfunction” due to SPACs, with the creation and operation of them maneuvered to “win even when investors lose.”
According to CNBC, Goldman hopes to close the gap between insiders and average shareholders. The bank invested $200 million in the Mirion deal, making it the largest private investor in a public entity player.
“At the firm, we are trying to build a franchise doing this. In order to do that, we want to have strong relative performance over time,” Knott said. “Sponsors who structure their transaction responsibly and bring really good businesses to market will always have a place to play.”