Lloyd Blankfein on how the SPAC rush could go wrong for investors

Former Goldman Sachs CEO Lloyd Blankfein sees hassle forward for SPACs, the particular objective acquisition firms getting used to take firms public.

While the SPAC development reveals no signal of cooling down amid excessive demand for shares of latest firms, investors have to be cautious, Blankfein mentioned Monday on Squawk Box. That's as a result of the SPAC course of circumvents the rigorous due diligence of the regular IPO course of, in keeping with Blankfein.

"You're getting companies public, but you're getting them public in a two-step process where one of the elements of an IPO is dropping out," Blankfein mentioned.

"When the initial SPAC goes public, you are scrutinizing a shell company, possibly the reputation of the sponsor," he continued. "When that company then de-SPACs and mergers, it's a merger, it's not an IPO that carries with it a lot of diligence obligations."

SPACs have been round for years, however they exploded in recognition final 12 months. SPACs raised $64 billion in 2020, almost as a lot as conventional IPOs, in keeping with Renaissance Capital.

Blankfein, who as former CEO of Goldman led one in every of Wall Street's prime IPO advisers for greater than a decade, recommended that SPAC individuals weren't incentivized to stop overpaying for their goal companies. That could result in conditions the place "some people make a lot of money and investors lose money," he mentioned.

"In the absence of diligence, that's going to be what will happen," Blankfein mentioned. "There are going to be things that go wrong."

The bigger backdrop is that habits seen in SPACs and different areas like bitcoin are indicators of "bubble elements" due to central banks' response to the coronavirus pandemic, a degree Blankfein has made in the previous.  

primarily based on website supplies www.cnbc.com

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