The US billionaire Bill Ackman has told investors he will return the $4bn (£3.4bn) he raised for the biggest-ever special purpose acquisition company (Spac), after failing to find a suitable target firm to take public through a merger.
Ackman wrote to shareholders in Pershing Square Tontine Holdings (PSTH) to say he would return the sum, blaming the faster-than-expected economic recovery from the Covid-19 pandemic for the failure.
It is a significant blow to the billionaire, who had planned for the investment vehicle to take a stake in Universal Music Group last year when there was a Spac craze on Wall Street.
He flagged numerous factors in the letter, including adverse market conditions and strong competition from traditional initial public offerings (IPOs) that thwarted his efforts to find a suitable company with which to merge his Spac.
“We launched PSTH in the depths of the pandemic because we believed that the capital markets would likely be impaired from the economic uncertainty created by the pandemic,” he wrote.
“The rapid recovery of the capital markets and our economy were good for America but unfortunate for PSTH, as it made the conventional IPO market a strong competitor and a preferred alternative for high-quality businesses seeking to go public.”
Last July, Ackman’s efforts to take a 10% stake in Universal Music – which was being spun off by the French media group Vivendi – through his Spac were scuppered by regulatory hurdles. The US Securities and Exchange Commission objected to the deal and Ackman put the investment into his hedge fund instead.
In July 2020, Ackman’s vehicle had raised $4bn in its initial public offering and lured prominent investors including the US hedge fund Baupost Group, the Canadian pension fund Ontario Teachers and the mutual fund company T Rowe Price Group.
Spacs are publicly listed shell companies that are created by large investors for the sole purpose of merging with a private firm, to take that targetpublic. They are also known as “blank cheque” companies.
They peaked during 2020 and the early part of 2021. Over the past year, companies that merged with these vehicles have performed poorly, prompting investors to shun them. That, coupled with tighter regulatory scrutiny and a downturn in stock markets, has effectively shut down the Spac market.
“While there were transactions that were potentially actionable for PSTH during the past year, none of them met our investment criteria,” Ackman said.
However, he is still working on launching a Sparc – a special purpose acquisition rights company – which gives investors an option but not an obligation to participate in a deal.
“With the Spac and IPO market effectively shut today, now is a highly opportunistic investment environment for a public acquisition vehicle which does not suffer from the negative reputation of Spacs,” he wrote.
