Jefferies' lucrative SPACs deliver a triple thwack

3 minute read

People walk outside of Jefferies Financial Group offices in Manhattan, New York, U.S., December 8, 2021.

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NEW YORK, Jan 11 (Reuters Breakingviews) - Blank-check firms have delivered a windfall for sponsors who set them up, banks who help them to go public, and advisers who counsel them on the acquisitions they’re designed to make. Jefferies Financial (JEF.N) is one firm that created a profitable niche by doing all three. But for all the fees they have generated, reputationally its SPACs are far from a triumph.

Of the 1,120 or so U.S. special-purpose acquisition companies that listed in 2020 and 2021, Jefferies – due to report earnings on Wednesday – underwrote 72, making it the No. 6 underwriter overall, according to data from SPAC Research. That’s huge given Jefferies’ boutique size read more . In the first quarter of 2021, for example, SPACs made up around one-quarter of its total equity capital markets revenue.

The market has soured somewhat on SPACs. Some 20 Jefferies-backed firms have found an acquisition target, but 17 trade at less than the $10 per share at which those deals were struck, according to Breakingviews calculations. Shares in one, Gemini Therapeutics (GMTX.O), closed on Tuesday at $2.23. The average is around $8, an underwhelming result for regular investors.

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It’s especially awkward for a bank like Jefferies when it both underwrote a SPAC and advised on its acquisition. That was the case with cryptocurrency firm Bakkt (BKKT.N), home-selling service Offerpad (OPAD.N) and cancer specialist Point Biopharma (PNT.O), to name just three, all now trading around $6 per share. Other Wall Street firms have seen similar misses, but at a giant like Citigroup (C.N) or Bank of America (BAC.N), SPAC activity is less significant.

Jefferies has managed to deliver a third SPAC thwack: It sponsored three blank-check firms of its own, Landcadia I, II and III. One bought online gaming outfit Golden Nugget, with shares soaring and then slumping. Another acquired online food delivery company Waitr (WTRH.O), which has collapsed in value. More successful is home improvement and hardware supplier Hillman Solutions (HLMN.O), though even that trades below the symbolic $10-per-share acquisition benchmark.

The SPAC effect is likely to be largely drowned out in Wall Street earnings by the surge in overall trading, underwriting and merger advisory revenue in 2021. Analysts expect Jefferies to report a record $8.3 billion of revenue for 2021, according to Refinitiv. Under that happy tide, however, lurks an undercurrent of SPAC-fueled disappointment.

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- More than 1,120 blank-check firms were brought to market in 2020 and 2021, according to data from SPAC Research. Of those, 72 were underwritten by Jefferies Group, the investment banking arm of Jefferies Financial, putting the firm in sixth place in underwriting league tables for special-purpose acquisition companies.

- Jefferies is set to report earnings on Jan. 12 for its full financial year ending Nov. 31. Analysts expect $8.3 billion of revenue, a 38% increase on the prior year, according to Refinitiv.

- As well as underwriting SPACs, Jefferies has sponsored three blank-check firms – Landcadia I, II and III – each of which has gone on to complete a merger with a previously-unlisted company.

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Editing by Richard Beales and Sharon Lam

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