Whereas the SPAC development reveals no signal of cooling down amid excessive demand for shares of latest corporations, traders have to be cautious, Blankfein stated Monday on Squawk Field. That is as a result of the SPAC course of circumvents the rigorous due diligence of the traditional IPO course of, in keeping with Blankfein.
“You are getting corporations public, however you are getting them public in a two-step course of the place one of many parts of an IPO is dropping out,” Blankfein stated.
“When the preliminary SPAC goes public, you might be scrutinizing a shell firm, presumably the status of the sponsor,” he continued. “When that firm then de-SPACs and mergers, it is a merger, it is not an IPO that carries with it a whole lot of diligence obligations.”
SPACs have been round for years, however they exploded in recognition final 12 months. SPACs raised $64 billion in 2020, practically as a lot as conventional IPOs, in keeping with Renaissance Capital.
Blankfein, who as former CEO of Goldman led one among Wall Avenue’s high IPO advisers for greater than a decade, steered that SPAC individuals weren’t incentivized to forestall overpaying for his or her goal companies. That would result in conditions the place “some individuals make some huge cash and traders lose cash,” he stated.
“Within the absence of diligence, that is going to be what’s going to occur,” Blankfein stated. “There are going to be issues that go fallacious.”
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, some extent Blankfein has made prior to now.