Many thanks, Darlene! Checking this afternoon, there are no new status updates to this deal, though I certainly expect some form of a public announcement within a couple of weeks. It has to be close for it to have leaked like that and for investors, in this case no doubt mostly hedge funds, to start buying stock.
I recently deluged an acquaintance we both know with (surprise) way too many words because the subject of SPACs and their desirability came up. I'll slice out 50% (well, 40%) of that verbiage here because I think folks may be wondering what, specifically, this might mean for 23andMe and our current tests there. This is not a repeat of the recent Blackstone Group and Ancestry.com acquisition, but the whole SPAC thing probably looks mysterious...and maybe even downright shady.
On one hand, I think the market should be as free as possible; on the other, I lived through the Penny Stock Reform Act and it's difficult to argue that measures of regulatory protection for investor aren't needed.
Superficially, a SPAC might seem like a back-door, lawyer-created way to...bend federal regulations a bit. But learning more about them recently (heck, even Shaquille O'Neal has a SPAC!), I've come to look at them more like a double-edged sword. If you, validly, describe a SPAC as a shell company that goes public with no assets and whose only business plan is to purchase an as-yet unidentified company, well, it doesn't sound exactly on the up-and-up. But a SPAC's primary investors are the most sophisticated--hedge fund managers, mainly--and they, as a SPAC, aren't going to end up on anyone's index fund or likely impacting 401(k)s and IRAs. Too, the Securities Act of 1993 put in a number of regulations to protect investors from the penny stock boiler-room type stuff of the '80s.
A SPAC is like betting on the driver, not the car. It's the expertise and reputations of the management that formed the SPAC that big-block investors are willing to get behind: their acumen about what companies to buy. Branson's VG Acquire being a good example. A SPAC is actually a vehicle that looks more like a limited partnership than a traditional corp or S corp, plus there are other restrictions. For example, a minimum 85% of the proceeds from the SPAC has to be placed in a trust or escrow that, until an acquisition is made, must be kept invested in low-risk government securities. At least 80% of the SPAC's investors have to approve of the target acquisition, and the SPAC, after formation, has 18 months to make an acquisition (plus a 6-month grace for a total of 24 months if a deal is announced during the first 18 but not finalized). So there are steps to mitigate investor risk and keep the acquisition on the level.
On the flip side, while IPOs certainly still happen every week, they're harder to pull off and generally less explosive and publicly visible than they were from the mid-90s through the early-2010s. The three largest IPOs since 2007 were mainland Chinese firms, headed by Alibaba Group in 2014. The last big biotech IPO was Hong Kong's JD Health that raised about $3.5 billion last year. Branson's SPAC offers 23andMe a way to go public without a traditional IPO and reliance on private equity money.
And it's sort of a "reverse merger" because, unlike big-player private equity (a la Blackstone and Ancestry.com) or a leveraged buyout, with a SPAC there typically isn't an existing management structure waiting to sweep in and clean house: the acquired company, at least initially, keeps control of its operations. While I knew before the ink had dried on the Blackstone deal that Ancestry.com's president would be gone, I don't think we'll see Anne Wojcicki go anywhere anytime real soon.
All that said, the frequency of the use of SPACs has been going through the roof...well, as a growth percentage anyway. And I don't really know what to make of that. In 2016 there were 13 SPACs formed to the tune of $3.5 billion, and in 2019 there were 59 and they raised a total of $13.6 billion. In 2020 we saw 248 SPAC IPOs raising $83 billion. It still isn't quite February yet and 2021 has already had a whopping 91 SPAC IPOs raising $25.4 billion (https://spacinsider.com/stats/).
Of the main genealogy DNA testing companies, and even though 23andMe had to cut some employees last year, they and their business model have weathered the sales-growth downturn better than any. Going public with an IPO is always risky, but I think particularly so right now in the middle of a pandemic-driven recession. (Okay; maybe nobody's officially calling it a recession, but if it walks like a duck and quacks like a duck....) This Branson SPAC deal, if it happens, removes most of the risk and fast-tracks 23andMe getting on NASDAQ. Unlike Blackstone/Ancestry and FTDNA/myDNA, I view this as a potentially big jump forward, not sideways...which I think is the best that can be said of those other two acquisitions.