Special Purpose Acquisition Companies, or SAVS, have become particularly popular over the past two years. A SAVS is formed and made public within the framework of an initial public offering for the sole purpose of merging with a private company, thus making the private company public.

So far in 2021, PSPCs have raised more than $ 100 billion in capital in more than 250 IPOs, compared to less than $ 15 billion in around 90 IPOs in 2019, according to our report released in late September ( Morningstar Direct customers can find it here). PSPC is also involved in the IPO of some of the biggest and most innovative companies, such as electric vehicle maker Lucid Motors, worth $ 55 billion. (LCID) and $ 16 billion of SoFi financial services platform (SOFI).

Investment banks earn income from companies that go public. So what does this increased PSPC activity mean for the industry?

PSPC boom could be a boon for investment banks

We believe the PSPC boom will positively affect industry-wide investment banking revenues. We estimate that the three PSPC-related investment banking fees – PSPC initial subscription, private investment in public equity placement fees, and acquisition advisory fees – can be up to 50% higher than the PSPC fees. traditional IPO underwriting to appeal to a private company. Public.

We forecast hundreds of billions of dollars in PSPC-related M&A transactions over the next two years

Since PSPCs typically need to merge with a company within two years of the PSPC IPO, we can use the amount of PSPC capital raised in recent years to forecast the volume of PSPC-related mergers and acquisitions. . Based on data from PitchBook, a Morningstar company, we can see that there have been over 750 IPOs of PSPC since the third quarter of 2019 and that they have raised around $ 200 billion in capital.

We roughly estimate that there are $ 17-20 billion in investment banking fees to be gained from the $ 200 billion in PSPC IPO capital raised over the past two years.

Who benefits from the PSPC activity?

The investment banks that will benefit the most from the PSPC business are those that generate a high proportion of merger underwriting and advisory income. Banks with significant trading, investment management or traditional banking activities will benefit from the advantages of PSPCs diluted by their diversification.

In our investment banking coverage in the United States, we believe that Evercore (EVR) will benefit the most from PSPC, followed by Lazard (LAZ).

We wouldn’t be surprised if PSPCs increase Evercore’s underwriting revenue by over 15%, or even closer to 30%, and its total investment banking revenue by around 4.5%. Evercore is an investment bank specializing in mergers and acquisitions. About 80% of the company’s net income comes from financial advice, such as merger and restructuring advice, and 10% of the income comes from underwriting.

We can see that Evercore’s subscription revenues have been dramatically high since the PSPC boom; it was more than 200% higher in 2020 than in 2019. Although this is in part attributable to an increase in industry-wide capital raising and the strengthening of Evercore’s reputation in its business as a institutional equities, we believe society has benefited a lot from PSPCs.

Over 50% of Lazard’s net income comes from financial advice, with the remainder coming from asset management. As the company has no securities subscription and trading activities, the benefits associated with SPACs will be reflected in its merger and acquisition advisory activities. While Lazard will not contribute much to the common SPAC and PIPE underwriting costs, the PSPCs are certainly a net positive for its investment banking income, while the PSPC-related income of other investment banks is partially offset by the loss of traditional underwriting income from bringing private companies to the stock market.