Richard Branson Reshapes Fortune With SPACs as Investors Torched (2)

Richard Branson made a fortune selling records. But one of Wall Street’s hottest pandemic plays is driving the billionaire’s wealth now, even as his and many other blank-check firms are slumping.

The Virgin Group founder has been a serial user of US special purpose acquisition companies, or SPACs, employing them to rapidly turn parts of his business empire into listed entities as well as to acquire stakes in companies such as Anne Wojcicki’s DNA-testing firm 23andMe Holding Co.

A SPAC set up by Virgin Group in 2021 completed its purchase last month of online retailer Grove Collaborative Holdings. While Grove’s performance has mirrored the broader SPAC slump — falling 31% since it began trading in June even after shares rallied last week — Branson has gains of about 50%, highlighting the rewards available to so-called sponsors of blank-check firms.

Branson’s SPAC dealings have remolded, propped up and expanded a business empire that began with a mail-order catalog in 1970 and now has investments in more than three dozen companies worldwide, including his flagship airline, Virgin Atlantic. He has a net worth of $5.7 billion, according to the Bloomberg Billionaires Index, down about 1% this year. Roughly a quarter of his fortune is held in companies that have listed through SPACs in the past three years.

“For the right company, a SPAC is a good way of raising money and building momentum,” a spokesperson for Virgin said in an emailed statement. “The team is always looking for new opportunities where it can make a difference, and we look forward to continuing to assess the use of SPACs as part of a balanced approach to portfolio investing.’’

Virgin Galactic Holdings Inc., the space-tourism company Branson founded in 2004, helped jump-start the SPAC boom in late 2019 when it merged with a blank-check firm set up by Chamath Palihapitiya.

Branson sold more than $1 billion of shares in the company during the pandemic as he scrambled to shore up Virgin Atlantic, whose revenue fell, like for other airlines, as demand for flights cratered.

I “put my hand very, very deep in my pocket to make sure that it came out the other side,” Branson, 71, said last month in a Bloomberg News interview.

Virgin Galactic surged more than 400% to almost $60 by early 2021 but has since slumped to as low as $5.14 after it delayed the launch of its commercial service. Branson’s remaining stake is worth about $225 million.

Branson, who took a trip into space a year ago, also owns a stake in satellite-launch company Virgin Orbit Holdings Inc., which he founded in 2017. In December, it completed a merger with blank-check firm NextGen Acquisition Corp. II. The shares have since tumbled more than 50%, but it remains his biggest listed stake with a value of about $1 billion.

SPACs make it easier to take companies public that have yet to generate significant revenue since they have fewer restrictions on financial projections compared with traditional listing routes. Virgin Galactic and Virgin Orbit had 2021 revenue of $3.3 million and $7.4 million, respectively.

“These are companies that are going to need a ton of capital to get off the ground,” said Usha Rodrigues, a law professor at the University of Georgia. “The SPAC is for the company that doesn’t have a lot of revenue.”

Branson has total gains of at least 50% from the SPAC that acquired 23andMe, even though the company’s shares have plunged more than 70% since they began trading in June 2021. That’s partly because sponsors typically hold 20% of the blank-check firm’s shares after the initial public offering, allowing them to end up with a stake in the target company for comparatively little money. SPAC sponsors also face additional charges such as underwriting fees, and are at greater risk of losing their capital than outside investors in blank-check firms, who are able to sell their holdings ahead of a business combination.

Virgin Group is a long-term investor in 23andMe, previously acquiring a stake in the firm’s series A fundraising round in 2007. The company’s other holdings outside the Virgin brand include Slack Technologies Inc., Block Inc. and Twitter Inc., filings show.

Virgin Group filed last year for a third SPAC but has yet to list it as the prospects of a recession and tighter regulations have lessened the appetite for blank-check firms. At least two companies that recently merged with SPACs — retailer Enjoy Technology Inc. and Electric Last Mile Solutions Inc., an EV-truck-startup — have filed for bankruptcy.

Richard Branson on the floor of the New York Stock Exchange following Virgin Galactic’s 2019 public listing.

Photographer: Michael Nagle/Bloomberg

The De-SPAC Index, a basket of companies that completed their tie-ups, has crashed 65% this year, compared with the 19% decline of the S&P 500 Index.

Virgin’s initial investments have helped shelter Branson’s fortune from the harshest fallout. Like many SPAC founders, Virgin firms paid just $25,000 for their first tranche of shares in the two blank-check companies that acquired 23andMe and Grove.

“The team reviewed hundreds of businesses and saw the phenomenal potential of both 23andMe and Grove to grow and lead in their respective categories,” the Virgin spokesperson said.

They also spent more than $100 million buying additional shares or warrants in private placements connected to both companies ahead of their listings, and at least another $55 million acquiring Virgin Orbit stock ahead of its public trading debut.

In return for getting in at a good price, Branson’s investment firms face a lock-up period of seven years for 23andMe and one year for Grove.

“The incentives of the sponsors are to get a deal done — any deal — because they get the founder’s shares very cheaply,” said Rodrigues, who has studied SPACs.

Branson has previously said raising funds through a SPAC is more efficient and less time-consuming than a traditional public offering.

From initial listing registration to trading debut, Virgin’s first SPAC raised funds more than twice as fast as Virgin Money UK Plc, the British lender in which Branson is a major investor. Its second blank-check firm, however, took almost as long as the bank.

Despite the recent turmoil, Branson isn’t ruling out starting another blank-check firm.

“If we can find other companies like Grove, we’d certainly consider it,” he said last month in an interview on Bloomberg Television.

(Updates with index performances in 16th paragraph.)

To contact the authors of this story:
Benjamin Stupples in London at bstupples@bloomberg.net

Tom Maloney in New York at tmaloney38@bloomberg.net

To contact the editor responsible for this story:
Cecile Vannucci at cvannucci1@bloomberg.net

Steven Crabill
Brian Chappatta

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