Billionaire activist investor Bill Ackman will close his special purpose acquisition company and return $4 billion to investors after failing to find an adequate target company to take public.
In a letter to shareholders Monday, Ackman said he would return the funds and wind down his SPAC, Pershing Square Tontine Holdings, because he was “unable to consummate a transaction that both meets our investment criteria and is executable.”
SPACs, or blank-check companies, are publicly traded shell entities created to acquire or merge with a private company and take it public without the disclosures and regulatory requirements of a traditional initial public offering. SPACs typically have two years to find a company to acquire before the owners must return funds investors.
The defeat presents a major setback for Ackman, a well-known hedge fund manager who created his SPAC — the largest ever in terms of money raised — in 2020 but was unable to ink an appropriate deal within the time limit.
Ackman originally wanted to take a partial stake in Universal Music in a spin-off by French media conglomerate Vivendi. But the US Securities and Exchange Commission objected to the deal because the SPAC hold shares of the company instead of merging with it, and so the plan was scrapped.
A month later the SPAC was hit with a lawsuit that challenged its core structure. That legal scrutiny made it difficult to find a replacement deal, Ackman said.
SPACs became a hot-ticket item among investors early in the pandemic. They have raked in hundreds of millions of dollars by allowing young companies with big valuations to go public quickly. But as markets have cooled this year and the appetite for high risk investing soured, blank check firms have waned in popularity.
Traditional IPO performance soared to record heights in 2021, drawing investor attention further away from SPACs. Regulators have since taken a more aggressive approach to the products.
Ackman cited these reasons in his exit letter to shareholders. “The rapid recovery of the capital markets and our economy were good for America but unfortunate for [Pershing Square Tontine Holdings], as it made the conventional IPO market a strong competitor and a preferred alternative for high-quality businesses seeking to go public,” he wrote.
But although Ackman may have one foot out the door, the other remains firmly in the SPAC building. He is now working on a new blank-check product called a SPARC, or special-purpose acquisition rights company, he said.
In a SPARC, investors do not put money in upfront. Instead, they receive a right to buy in once a merger target is announced. There is no time limit for identifying a takeover target.
“We are disappointed that we did not achieve our initial objective of consummating a high-quality transaction,” Ackman wrote in his letter. “We look forward to the opportunity to continue to work on your behalf once SPARC is successfully launched.”