October 15, 2020

Breakingviews: Vision Fund SPAC is humbling downsize for SoftBank

by Breakingviews.

Arguably nothing screams “bubble” louder than a SoftBank Vision Fund SPAC. Yet it’s hard to imagine the Japanese group bothering with a special purpose acquisition company if it still had Middle Eastern billions to play with. Far from being the peak of irrational exuberance, it’s actually a mark of the company’s waning influence.

Rajeev Misra, who runs the London-based Vision Fund and is also on SoftBank Group’s board, announced the plan at a conference on Monday. Like most blank-cheque vehicles, it will take new money in an initial public offering, and then scout for private acquisition targets that are ready to list. But the Vision Fund SPAC may also include cash from SoftBank’s balance sheet, according to a person familiar with the matter. Axios reported that the intention is not to buy an existing SoftBank portfolio company, like recent flop WeWork, and bring it public.

In one sense, launching a SPAC is a no-brainer. Blank-cheque vehicles have raised $50 billion this year, according to Refinitiv, compared with $14 billion in 2019. With former U.S. House Speaker Paul Ryan hopping on the trend, why shouldn’t the world’s most famous technology investor? And the rewards can be enticing. Sponsors, in this case the Misra-run SoftBank Investment Advisers (SBIA), typically get 20% of the vehicle’s shares for a nominal sum. So if Misra raises a large $500 million SPAC and doubles its value through M&A, SBIA would generate $200 million of equity value from practically nothing.

Still, those sums are tiny compared with the original $98.6 billion Vision Fund, backed to the tune of $65.5 billion by external investors like Saudi Arabia’s sovereign wealth fund. SBIA’s management fee on the equity portion held by outside parties alone could be up to $305 million each year, according to Breakingviews estimates based on SoftBank’s disclosures.

The Vision Fund’s performance has admittedly been disappointing. It reported $71.5 billion of investments as of June 30, for which it had paid $75.2 billion. But the unprecedented scale at least gave Misra and his colleagues something unique: portfolio companies like Uber Technologies can in theory outlast competitors in money-losing industries.

Rather than reshaping whole industries with the help of Gulf billions, Misra is now chasing public money to launch a SPAC. It’s a humble downsize for SoftBank.

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