Why Are Top CEOs Flocking To SPACs (Blank Check Companies)?

Current and recent Chief Executives are pursuing SPACs as the next step in their careers.

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In just the last few weeks, three prominent Chief Executives: Dave Cote of Honeywell, Thomas Farley of the New York Stock Exchange, and Baudouin Prot of BNP Paribus all announced they were taking on significant new roles. But not as CEOs of large, global organizations. Rather, all three announced they would be leading blank-check companies, or “SPACs”. What are these relatively unknown entities, and why are they attracting so many of the world’s top leaders? 

What is a SPAC?

A SPAC (Special Purpose Acquisition Company), also known as a blank-check company, is a publicly listed company with no operations that raises money from investors via an IPO for acquisitions. Interest in these companies among the world’s most experienced CEOs has been soaring lately. While you very likely may have never heard about these companies, SPACs actually made up nearly 20% of all IPOs in 2017. 

A SPAC typically partners a successful and well-known executive with an institution such as a private equity firm or an investment bank to pursue acquisitions, usually with a sector-specific focus. Together, they issue shares through an IPO, with an institutionally backed SPAC usually raising between $200-$600 million. After the IPO has been completed successfully, the executive and their team typically have two years to find an appropriate acquisition target, which is then merged into the SPAC to create a newly formed publicly listed company.     

While this may seem like an unusual structure and process, SPACs actually serve a very important purpose in today’s financial marketplace. First, the process under which the company is listed could be faster when compared to a traditional IPO, as a SPAC merger could be completed in as little as 90 days, whereas a typical IPO process could take 12 months or more. Second, as the transaction is structured as a merger, rather than an IPO, the process under which the deal is “marketed” to prospective investors is much more flexible.  Finally, SPACs provide a path to liquidity and access to the public markets for good companies that are growing at an attractive rate, but are not considered “sexy” when compared to certain SaaS software, fin-tech or social media companies that often dominate the headlines of IPOs.

Why Are CEOs So Attracted to SPACs?

Until a few years ago, like many executives, I had never heard of a SPAC. But I have become an unlikely expert in this growing phenomenon. One of my companies, CEO Next, works directly with recent Fortune 1000 Chief Executives who are trying to identify new, interesting opportunities. In the last few years, interest in SPACs among top CEOs has grown dramatically.

Why the attraction? For many recently retired Chief Executives, leading a SPAC offers the optimal combination of opportunity and activity. The large majority of former public company CEOs are not interested in jumping back into a similarly all-consuming leadership role. They have been there, done that, and most have taken enough chips off the table to be choosy. But most CEOs aren’t satisfied with simply improving their golf game. They want to stay active in business and are eager to pursue interesting opportunities.

The dilemma that many CEOs face is that the time commitment for many of the opportunities they are presented with is prohibitively long. Pursuing a private equity deal holds great uncertainty and often requires a 7+ year commitment. Committing to one or two board seats is likely to be just as inflexible and can be similarly difficult to exit. 

With a SPAC, the CEO is required to only make a 24-month commitment, work part time with a small team, and focus on an industry sector they are excited about. SPACs can also be extremely lucrative, with payouts often reported in the tens of millions of dollars.

Being acquired by a SPAC is certainly not the answer for every company. Similarly, leading a SPAC is not the right fit for every retiring CEO. But for a growing number of companies and executives, the flexibility of SPACs is likely to continue to attract many of the world’s best. 


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