An IPO Launch: Virgin Galactic goes public

July 25, 2019

2 min read

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What's going on here?

Richard Branson has listed Virgin Galactic publicly in order to receive private investment backing.

What does this mean?

Branson has taken Virgin Galactic public as agreed in its deal with Social Capital Hedosophia Holdings Corp (a special purpose acquisition company or SPAC). A SPAC is a type of company that raises money from many investors through an initial public offering (IPO). Once the money is raised, the SPAC then decides where it’s going to invest the money. In this IPO, the SPAC raised $800 million and then eventually decided to invest it into Virgin Galactic. In this case, the SPAC here will receive a 49% stake in Virgin Galactic.

Why should law firms care?

SPACs are increasing in popularity in recent years as they offer quick ways of investors to take advantage of opportunities in mergers and acquisitions. In fact, more SPACs went public in 2018 than in any year since 2007. But, they work in an unusual way. “It’s like doing private equity in reverse,” says Professor Tim Jenkinson of Oxford University, “as you get a public listing first, then find private investors to back into it.”

The usual investors in these structures are hedge funds (investment funds that look to manage risk) as they’re seen as a ‘safe bet’. For these investors, the rise of SPACs breed confidence. Jenkinson said that “SPACs are a sign of a booming market. They’ve been called ‘blank cheque’ companies”. What’s key to look out for when a SPAC like this makes an investment is how the news affects its value. If the share price of the SPAC goes up after the announcement, the market is confident that it was a good purchase. However, if the price drops, maybe it wasn’t such a good deal! In the case of Social Capital Hedosophia Holdings Corp, its price stayed mostly level (with a momentary spike) after the announcement – so, whilst not a large endorsement, an increase in the share price could be considered positive.

To find out whether this deal with Virgin Galactic is going to ‘rocket’ up to great heights, you’ll have to watch this space(!)

Report written by Harina Chandhok

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