SPAC Attack: The Music Business' New Favorite IPO Strategy

As the music business becomes more attractive to investors, it's also becoming a magnet for alternative investment vehicles. And one of the most popular in the last two years is the special purpose acquisition company, or SPAC, which provides a way for private companies to go public — and for individual investors to profit from that.

Essentially, a SPAC is a shell company that goes public with the intention of buying a private firm. Its investors have the opportunity to get in early on a startup, which in turn can gain a public listing without the disclosure and regulatory requirements of a traditional initial public offering. And they're becoming more popular: SPACs raised $78 billion in 2020, half of the total amount that went to IPOs in North America, according to Bloomberg News.

Many SPACs target companies in cutting-edge sciences with high growth potential. The SPAC model gained widespread attention in 2019 when space travel company Virgin Galactic raised over $650 million by merging with a SPAC. More recently, SPACs have targeted companies in biotechnology, electric vehicles and battery technology. DNA-testing company 23andMe will sell a 19% stake to VG Acquisition Corp. at a $3.5 billion valuation in the second quarter of 2021. A SPAC frenzy is turning rumors into surges in SPAC prices: rumors of talks with Lucid Motors, manufacturer of high-end electric vehicles, have sent shares of Churchill Capital up over 200% in the last month.

Now they've come to the music business. Former Geffen Records president Neil Jacobsons's SPAC, Music Acquisition Corp., raised $230 million in an IPO on the New York Stock Exchange on February 4. On Jan. 22, Liberty Media, a conglomerate that owns a majority of SiriusXM and about one-third of Live Nation, held an IPO for a SPAC that raised $575 million. And TikTok competitor Triller is looking to be acquired by a SPAC, an industry source tells Billboard.

SPACs go public without knowing what companies they'll acquire, but they target sectors where their founders have expertise. For Jacobson, "connections would be pretty attractive" to investors, says Usha Rodrigues, a University of Georgia law professor who studies SPACs. SPACs can also be risky because they usually acquire startups looking to skip the scrutiny that comes with an IPO. "When you bypass that process," says Rodrigues, "you necessarily bypass investor protections."

SPAC investors can vote against an announced acquisition, however, and they offer one of the only ways for individuals without considerable wealth to participate in the kinds of investment opportunities usually limited to private equity funds. They could also work well in music. "Any company that can leverage technology," says Paul Bernstein, vice chair of Venable's Entertainment and Media Group, "is probably in the right ballpark for a SPAC."

A version of this article originally appeared in the Jan. 30, 2021, issue of Billboard.