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1. “Blank-check companies” – also known as SPACs – are booming this year
  • The past month has seen a frenzy of SPAC activity. SPACs (special-purpose acquisition companies), or “blank-check companies,” have been around since the ‘90s but are seeing a resurgence. SPACs are shell vehicles without assets or operating businesses, which fundraise through an IPO (typically at $10/share) for yet-to-be-named acquisitions. Like a direct listing, an acquisition or merger by a publicly traded SPAC is an alternative for a private company to go public without the uncertainty and hoopla of an IPO.
  • 2019 was a banner year for SPACs with a record 59 IPOs raising $13.6B, including buzzy companies such as Virgin Galactic. 2020 has continued the trend with 55 SPAC IPOs raising $22B+ so far, already passing the 2019 record. The market may be on pace for as many as 100+ SPACs this year.
  • SPACs are luring hot companies in sectors such as online sports betting and gaming (e.g. DraftKings, Rush Street Interactive, Golden Nugget Online Gaming) and electric vehicles (e.g. Nikola, Fisker). Technology-focused SPACs are also targeting large unicorns that have stayed private longer, enabled by access to capital. Sensor firm Velodyne, for instance, went public earlier this month, and Airbnb has reportedly been approached by SPACs. Nasdaq is also the preferred exchange for SPACs, winning over 75% of IPOs since 2010.
  • Other selected SPAC activity this month include: Oakland Athletics “Moneyball” exec Billy Beane and RedBird Capital raising $500M for the first-ever sports-focused SPAC to acquire a major organization (e.g. sports media, data analytics, professional franchise); growth-equity firm Dragoneer raising $600M for a tech-focused SPAC; the largest-ever SPAC ($4B) raised by billionaire Bill Ackman of Pershing Square Capital to acquire a late-stage unicorn from a list of 150 targets; and healthcare services company MultiPlan going public in the largest-ever SPAC merger ($11B).
  • For private companies, SPACs can be an easier way to raise funds or go public – which can be especially attractive in a period of market volatility. SPACs that come with well-known backers with their own brands and reputation don’t necessarily need the hoopla and press generated by a traditional IPO, and also benefit from the experienced guidance of the founders. Roadshows for traditional IPOs are now virtual anyway (and market-making now remote), reducing the gap between them and SPACs.
  • It’s not yet clear whether SPACs are here to stay. Retail investors are being drawn to SPAC offerings from buzzy companies, or those in sectors such as cannabis or sports betting, which might otherwise be less appealing to institutional investors. However, SPACs are not getting as much regulatory scrutiny as traditional IPOs, creating risks for inexperienced investors.
Related Briefs:
  • Oct 20 2019: Direct listings — first Spotify & Slack, now maybe Airbnb?
2. A rundown of the COVID-19 vaccine race and its frontrunners
  • Vaccine development involves the following: (a) Exploratory and pre-clinical stages; (b) clinical evaluation with human subjects (Phase I – safety and dosage testing in a small group, Phase II – expanded safety trials with hundreds of people; Phase III – efficacy trials with thousands of people); (c) regulatory review and approval (which require proven effectiveness in at least 50% of individuals); and (d) manufacturing. The most promising vaccines are currently in the later-stage clinical trials, some in combined phases (I/II or II/III) to accelerate development.
  • Of the 26 vaccines in human testing, there are 5 vaccines in Phase III (including combined II/III): (1) Moderna’s messenger-RNA vaccine, with the National Institute of Allergy and Infectious Diseases (US); (2) BioNTech (Germany)’s messenger-RNA vaccine, with commercialization partners Pfizer (US) and Fosun Pharma (China); (3) University of Oxford’s adenovirus-based vaccine, with commercialization partner AstraZeneca (UK); and (4-5) inactivated vaccines from Chinese players Sinovac and Sinopharm.
  • Moderna (US) just kicked off Phase III, which will test 30,000 humans across 89 US sites, backed by $955M in government funding. Data will not be available until November or December. Assuming it is successful and approved, Moderna expects to be able to deliver at least 500M doses per year (and up to 1B) starting in 2021, at $50-60 per 2-dose course.
  • In China, Sinovac just launched its inactivated-strain vaccine into Phase III in Brazil, which could take as little as 3 months. It is building a manufacturing facility with capacity for up to 100M doses per year. Sinopharm also this month began a Phase III trial of an inactivated vaccine in Abu Dhabi, with up to 15,000 participants.
  • Development is just the first step; production and distribution are next. Organizations are investing in the supply chain, such as materials, warehousing and transportation to ensure vaccines arrive at hospitals, pharmacies and schools. Governments are also getting involved – in the US, the government has allocated $10B to Project Warp Speed to distribute 300M doses by Jan 2021, with the potential for another $25B.
Related Briefs:
  • Apr 15 2020: Geolocation tracking & the expansion of government surveillance
  • Mar 18 2020: Looking beyond – 11 ways in which COVID-19 might be an inflection point
3. AMC & Universal collapse the exclusive theatrical window to just over 2 weeks
  • This week, AMC Theatres (the largest global cinema chain) and Universal Pictures announced a landmark agreement to shorten the time during which cinemas would have exclusive access to Universal films before they become available online, from 75 days to 17 days (or 3 weekends).
  • The announcement establishes a truce between the two companies. In Apr 2020, NBCUniversal CEO Jeff Shell had announced plans to release movies in both theaters and on streaming platforms, based on the streaming success of the Trolls World Tour movie during the pandemic, which yielded $100M+ in revenue for the studio with higher margins. Shell’s comments prompted AMC to announce it would no longer show Universal films in any of its theaters worldwide.
  • While we have seen some studios debut top-shelf productions (e.g. Hamilton on Disney+) on streaming platforms, movie theaters have been and will likely continue to be central to studio profits. This is especially true when it comes to tentpole films that can generate $1B+ in ticket sales. A hit movie might generate half or more of its box office gross during the first few weeks of a theatrical run. High-budget movies that cost $100M+ to make are unlikely to be very profitable through streaming platforms alone. This is a key reason why studios have been pushing back anticipated films such as Tenet, in hopes of being able to open them in theaters. Eligibility for awards is another factor, which impacts a studio’s ability to maintain prestige and attract star talent.
  • Whether the shortened exclusivity window will change the psychology of moviegoers remains to be seen. Some may prefer to wait the two weeks and watch from the comfort of their home, particularly family movies. Theaters will have to invest in the “experience” of going out to the movies, such as in-theater food and drinks, digital services (e.g. mobile ordering), technology upgrades (e.g. virtual reality), live audience interactions, and unique events. In the short term, this will also mean redesigning operations to be pandemic-friendly (e.g. partitions, distancing).
  • We can also expect new business models to emerge, such as bundled offers (movie tickets with digital downloads); partnerships among streaming platforms, studios, and theaters on promotions, advertising and measurement; and more integrated and social offline-online watching.
Related Briefs:
  • May 15 2020 (3 Shifts): Video-streaming & big tech shake up the business of theatrical releases
  • Oct 24 2019: Disney+ and the age of streaming-video wars
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