Following approval by the US Securities and Exchange Commission (SEC), billionaire hedge fund manager Bill Ackman has successfully brought a new type of company to the market called a SPARC.
Readers will likely recall the 2021 SPAC trend, where hundreds of reverse mergers came to market amid a record bull run, only for the vast majority of them to tank in value once the overbought reality of the global equities market became apparent.
SPACs, or special purpose acquisition vehicles, were nothing new at the time, but Ackman’s Pershing Square SPARC Holdings has tweaked the model, with SPARC standing for special purpose acquisition rights company.
However, both vehicles are in essence out to do the same thing - take private companies public in a cheaper, easier way.
Standing for special purpose acquisition rights company, the key differences of a SPARC are as follows:
- No Immediate Capital Raise: Unlike SPACs, a SPARC does not raise capital immediately. Investors are not required to invest money until a deal to acquire a company is announced.
- Rights, Not Shares: Investors in a SPARC receive rights, not shares. These rights entitle the holder to buy shares in the SPARC at a later date, typically once a deal is announced.
- No Time Limit: Traditional SPACs usually have a time limit (often two years) to complete a merger, or they must return the raised capital to investors. SPARCs do not have this time constraint.
- Reduced Risk: Since investors in a SPARC are not putting up capital upfront, they face reduced risk. They have the option to invest once a target company is identified, allowing them to assess the deal before committing capital.
Bill Ackman, whose Pershing Square Holdings (LSE:PSH) trust is listed on the London Stock Exchange, put a call out on X/Twitter for potential acquisition targets.
Pershing Square SPARC Holdings, Ltd.
If your large private growth company wants to go public without the risks and expenses of a typical IPO, with Pershing Square as your anchor shareholder, please call me. We promise a quick yes or no. https://t.co/6YXVZm9EgQ
— Bill Ackman (@BillAckman) September 29, 2023
Pershing Square SPARC Holdings is targeting companies seeking to raise a minimum of $1.5 billion of capital for primary and/or secondary issuances “with effectively no upper limit to the size of the company or the amount of capital raised”, read the official press release.
Speaking of X/Twitter, Ackman told the Wall Street Journal he was open to taking Elon Musk’s social media plaything public via a deal with the SPARC.
Following Musk’s $44 billion acquisition, X/Twitter’s valuation is a matter of debate (Musk admitted to pay too much for it), though it is undoubtedly valued at much more the $1.5 billion, meaning a flotation would comprise only a small amount of equity ownership in the platform.