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Goldman Sachs wants to build an investor-friendly SPAC business following market bust

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A trader works on the floor of the New York Stock Exchange (NYSE) in New York, Sept. 20, 2021.
Michael Nagle | Bloomberg | Getty Images

Goldman Sachs just closed its second billion-dollar blank-check deal ever as the Wall Street firm seeks to change the struggling SPAC market by building a sustainable franchise that aligns investor interests with insiders.

Nuclear measurement and analytics company Mirion Technologies started trading on New York Stock Exchange Thursday after merging with GS Acquisition Holdings Corp. II, which values the combined company at about $2.6 billion including debt.

Unlike most of the SPACs on the market where sponsors are entitled to 20% of the total shares outstanding following the IPO for free, or at a big discount, Goldman’s Mirion deal fully defers this so-called sponsor promote and sponsors will only start getting paid when shares rise more than 20%.

“If you earn the promote upfront, there is always a bias towards stretching a little bit more on price and a little bit more on projections because you are incented to get the deal done,” said Tom Knott, head of Goldman’s emerging SPAC business. This division falls under the asset management arm of the Wall Street bank.

Special purpose acquisition companies raise money on the public markets sometimes without a vision of which companies they will eventually take public within two years. They have come under scrutiny for disproportionate insider benefits and lucrative incentives, oftentimes at the expense of retail investors.

Elizabeth Warren and other Democratic senators recently sent open letters to a few high-profile SPAC leaders to question how they are compensated. SEC Chairman Gary Gensler has repeatedly warned of the misaligned interests between sponsors and shareholders and said greater disclosure is needed.

Goldman is seeking to bridge the gap between the returns that insiders get versus average shareholders. The bank also invested $200 million in the Mirion deal, which makes it the biggest PIPE investor.

“At the firm we are trying to build a franchise doing this. In order to do that, we want to have strong relative performance over time,” Knott said. “Sponsors who structure their transaction responsibly and bring really good businesses to market will always have a place to play.”

After a blockbuster 2020 and the first quarter of 2021, now a record amount of SPAC capital — over $135 billion — is seeking target companies to take public, according to Barclays Research.

The first deal Goldman Asset Management did was Vertiv Holdings at the end of 2019, which valued the data-center equipment company at over $5 billion. Shares have since more than doubled.

Goldman has registered additional SPACs with the SEC, including GS Acquisition Holdings Corp. VIII and IX.

“I sit down with 1000 companies with each deal we buy, and I tell everyone of them the statistical probability of us doing a deal with pretty low, but our hope is at the very least, the next SPAC that comes through your door, I hope the first thing you ask them is why are you not willing to fully defer your promote because Goldman Sachs is,” Knott said.

“We are really focused on changing the market,” he added.