SPACs outpace traditional IPOs 2 months straight, bringing 2020 issuance to a record $33 billion

Published Wed, Sep 9 202012:34 PM EDT

(This story is for CNBC Pro subscribers only.) Wall Street's craze in SPACs continues to heat up as each month goes by: funds raised via blank-check deals have exceeded traditional IPOs for two months straight. Total proceeds from special purpose acquisition companies raised $10 billion in August after a record of $10.5 billion in July, compared to a total of $17 billion funding from traditional initial listings for the past two months, according to data from Refinitiv. There has been a historic $33 billion funding raised via a total of 86 SPACs this year alone, a more than 260% jump from the same period a year ago, the data said. Some of Wall Street's most high-profile investors including hedge fund billionaire Bill Ackman and Oakland A's executive Billy Beane have launched their own blank-check companies this year, bringing more hype to this booming IPO alternative vehicle. A SPAC is formed to raise funds to finance a merger or acquisition within two years typically. The target firm will be taken public through the acquisition. "By number of listings, August 2020 marks one of the few times that SPAC listings outpaced traditional IPOs on a monthly basis," Matt Toole, director of deals intelligence at Refinitiv, told CNBC. This year's head-turning SPAC boom came amid the unprecedented coronavirus pandemic, which hiked volatility levels and make traditional IPOs riskier. Meanwhile, low-rate environment sent yield-hunting investors scrambling for better returns, which some blank-check deals promise. Successful SPAC deals earlier this year, including Nikola and DraftKings , also brought more attention to the market. Blank-check deals are close to matching the total volumes in the traditional IPO market this year. Excluding SPACs, about $40.7 billion were raised for U.S.-listed IPOs in 2020, according to Refinitiv. Many view SPACs as a relatively risky offering for investors as they go public without having a real business. The popularity in SPACs speaks to a speculative fervor as sponsors tend to pile in when the stock market hovers around all-time highs, according to Citi research. The spikes in these deals have coincided with the equity market near highs, Citi pointed out. Before the crash of the financial crisis, SPAC issuance reached a high of over $11 million in 2007, more than tripling the total money raised in the previous year, according to Refinitiv. At the same time, the S & P 500 tumbled more than 50% from 2007's peak to hit its bottom in March 2009. "While we are certain that some would disagree with us, we also get a bit worried when the issuance of SPACs surge," Tobias Levkovich Citi's chief U.S. equity strategist, said in a note. "We fully understand the opportunistic nature of such fund raises, but we get concerned about giving people blank checks on deals that may or may not be done successfully in the future," Levkovich said. "There is a speculative element here (even with strong sponsors and good managers)." The S & P 500 reclaimed its record high last month after rebounding 70% from its March bottom. The market recently experienced a tech-led pullback as investors rotated out of some of the market-leading high fliers. The Nasdaq Composite dropped 10% in the past three session, dipping into correction territory. Goldman Sachs had previously warned regular investors of jumping into the red-hot market. The bank analyzed those completed deals since the beginning of 2018 and found that in the long run, they tend to underperform the broader market and returns are all over the place. — With assistance from CNBC's Nate Rattner and Michael Bloom.

A pedestrian wearing a face mask looks at a smartphone while passing in front of the New York Stock Exchange (NYSE) in New York, on Monday, July 20, 2020.

Michael Nagle | Bloomberg | Getty Images

(This story is for CNBC Pro subscribers only.)

Wall Street's craze in SPACs continues to heat up as each month goes by: funds raised via blank-check deals have exceeded traditional IPOs for two months straight.

Total proceeds from special purpose acquisition companies raised $10 billion in August after a record of $10.5 billion in July, compared to a total of $17 billion funding from traditional initial listings for the past two months, according to data from Refinitiv. There has been a historic $33 billion funding raised via a total of 86 SPACs this year alone, a more than 260% jump from the same period a year ago, the data said.

Some of Wall Street's most high-profile investors including hedge fund billionaire Bill Ackman and Oakland A's executive Billy Beane have launched their own blank-check companies this year, bringing more hype to this booming IPO alternative vehicle. A SPAC is formed to raise funds to finance a merger or acquisition within two years typically. The target firm will be taken public through the acquisition.

"By number of listings, August 2020 marks one of the few times that SPAC listings outpaced traditional IPOs on a monthly basis," Matt Toole, director of deals intelligence at Refinitiv, told CNBC.