Goldman Sachs Abandons SPAC Business

Issue 122

Goldman Sachs is pulling out of working with most SPACs it took public, spooked by new liability guidelines from regulators and throwing into doubt the fate of billions raised for those blank-check vehicles.

The Wall Street giant and the second-biggest underwriter of special purpose acquisition companies last year, has been telling sponsors of the vehicles it will be ending its involvement.  The bank is also electing to pause new U.S. SPAC issuance for the time being.

A SPAC works with its adviser even after going public to complete its merger with a target firm, known as the de-SPAC transaction. If it fails to complete that deal, it’s forced to return capital to investors. In cases where the public company is very close to completing the de-SPAC process, Goldman will fulfill its role.

Goldman may also elect to continue the advisory work with a small number of SPAC clients in rare cases. Other sponsors will need to seek new advisers to take over the role vacated by the bank.

If Goldman’s decision is followed by peers, that could hurt investment vehicles that have already gone public and are on the hunt for a takeover target. It’s unusual for a bank to withdraw from an active blank-check firm because it typically works on the de-SPAC as well. The move risks leaving the sponsor of the SPAC -- its client -- in the lurch and unhappy.

Goldman is bracing for pressure to be exerted by angry clients, who had put up their own capital as well as pay fees to get their SPACs off the ground and are still eager to find takeover targets and complete their mergers.

Citigroup has already paused initial public offerings of new U.S. SPACs until it gets more clarity on potential legal risks. Citigroup was the largest underwriter of U.S. black-check firms last year, when $93 billion was raised in SPAC offerings.

Source: Bloomberg