Richard Branson’s use of SPACs is fueling his fortune
Jump to heading Richard Branson’s use of SPACs is fueling his fortune
Even as the shares of Virgin Group plummet, the founder's frequent use of special purpose acquisition companies is fueling his fortune.
Richard Branson earned a fortune from record sales. However, one of Wall Street's hottest pandemic bets is now propelling the billionaire's riches, despite the fact that his and many other blank check companies are struggling.
The Virgin Group founder has been a frequent user of US special purpose acquisition companies, or SPACs, using them to quickly transform segments of his corporate empire into publicly traded organizations as well as to buy shares in firms such as Anne Wojcicki's 23andMe Holding Co.
Last month, Grove Collaborative Holdings was purchased by a Virgin Group SPAC established in 2021. While Grove's performance has matched the overall SPAC collapse, plummeting 31% since its inception in June despite a recent rally in equities, Branson has gained around 50%, demonstrating the benefits available to sponsors of SPACs.
Branson's SPAC transactions have reshaped, supported, and enlarged a commercial empire that started with a mail-order catalog back in 1970 and now includes stakes in more than three dozen firms throughout the globe, including his main airline, Virgin Atlantic. As per the Bloomberg Billionaires Index, he has a net worth of $5.7 billion, which is down around 1% this year. Approximately a fifth of his money is invested in firms that have gone public via SPACs in the last three years.
"For the appropriate firm, a SPAC is a wonderful method to raise money and generate momentum," said a Virgin spokeswoman in an emailed statement. "The team is constantly on the lookout for new possibilities to make a difference, and we look forward to continuing to evaluate the usage of SPACs as part of a balanced approach to portfolio investment."
Virgin Galactic Holdings Inc., Branson's space-tourism business formed in 2004, helped kick-start the SPAC boom in late 2019 when it combined with a Chamath Palihapitiya SPAC.
During the epidemic, Branson sold more than $1 billion in company stock as he rushed to shore up Virgin Atlantic, whose income collapsed, as did that of other airline companies, as demand for flights plummeted.
In a Bloomberg News interview last month, Branson, 71, added, "I pushed my hand very, very deep into my pocket to ensure it came out the other side."
Virgin Galactic rose more than 400% to almost $60 by early 2021, but has subsequently dropped to as low as $5.14 after delaying the commercial debut of its service. Branson's remaining ownership is valued at around $225 million.
Jump to heading SPAC Transactions by Richard BransonSource: Data compiled by Bloomberg Note: Data as of July 8, 2022
Branson, who went into space last year, also has a share in Virgin Orbit Holdings Inc., a satellite-launch firm he launched in 2017. It executed a merger with the SPAC NextGen Acquisition Corp. II in December. The stock has now dropped more than 50%, yet it is still his largest publicly traded holding, at over $1 billion.
Because they have less constraints on financial predictions than conventional listing methods, SPACs make it simpler to take firms public that have yet to produce significant income. Virgin Galactic and Virgin Orbit generated $3.3 million and $7.4 million respectively in revenue in 2021.
"These are enterprises that will need a significant amount of cash to get off the ground," said Usha Rodrigues, a law professor at UGA. "The SPAC is for a corporation that doesn't make a lot of money."
Even though the company's shares have fallen more than 70% since they started trading in June 2021, Branson has made at least a 50% profit from the SPAC that purchased 23andMe.This is due in part to the fact that following the first public offering, sponsors often control 20% of SPACs shares, enabling them to end up having a position in the target business for very little money. SPAC sponsors must also pay extra expenses, including underwriting fees, and are more likely to lose their money than external investors in SPACs, who may sell their stakes prior to a business combination.
Virgin Group is a long-term shareholder in 23andMe, having previously invested in the company's series A financing round in 2007. According to documents, the company's other assets outside of the Virgin brand include Slack Technologies Inc., Block Inc., and Twitter Inc.
Virgin Group applied for a third SPAC last year but has yet to list it since the threat of a recession and harsher rules has diminished the desire for blank check companies. At least two firms that recently combined with SPACs, retailer Enjoy Technology Inc. and EV truck startup Electric Last Mile Solutions Inc., have declared bankruptcy.
The De-SPAC Index, a portfolio of firms that completed their mergers and acquisitions, has dropped 65 percent this year, compared to the S&P 500 Index's 19 percent drop.
Virgin's early investments helped protect Branson's money from the worst of the impact. Virgin businesses, like many SPAC founders, paid $25,000 for their initial round of shares in the two SPACs that purchased 23andMe and Grove.
"The team analyzed hundreds of companies and identified the tremendous potential of both 23andMe and Grove to expand and dominate in their respective sectors," according to a Virgin spokeswoman.
They also invested more than $100 million in private placements related to both firms before their debuts, and around another $55 million purchasing Virgin Orbit stock prior to its IPO debut.
Branson's investing businesses face a seven-year lock-up time for 23andMe and a one-year lock-up period for Grove in exchange for getting in at a low price.
"The sponsors' motivations are to get a sale done — any deal — since they receive the founder's shares for extremely cheap," said Rodrigues, a SPAC expert.
According to Branson, obtaining cash via a SPAC is more efficient and less time-consuming than a standard IPO. From its first listing registration to debut on the stock market, Virgin's first SPAC generated capital more than twice as quickly as Virgin Money UK Plc, the UK lender in which Branson is a key stakeholder. Its second blank-check company, on the other hand, took almost as long as the bank.
Despite the current turbulence, Branson isn't ruling out the possibility of launching another blank check company. "If we can discover additional firms like Grove, we'd absolutely explore it," he said in a Bloomberg Television interview last month.
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(As of July 12, 2022, funds managed by Cohanzick Management, LLC and its affiliates do not own a position in 23andMe Holding Co., Grove Collaborative Holdings Inc., Virgin Galactic Holdings Inc., Virgin Orbit Holdings Inc., Slack Technologies Inc., Block Inc., Twitter Inc., Enjoy Technology Inc., Electric Last Mile Solutions Inc., Virgin Money UK Plc.)
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