Richard Branson loses more than £2.5bn after Virgin Orbit and Virgin Galatic collapse
Heavy investment in risky ventures using financial vehicles called SPACs during the pandemic seems to be to blame.
Sir Richard Branson and his company, Virgin Group, are household names in the UK. He’s long held the title of Britain’s most famous entrepreneur and owns more than 400 businesses in everything from space to banking to cruise ships.
His net worth in 2022 was nearly £5bn, making him one of the wealthiest businessmen in the UK.
According to the Bloomberg Billionaires Index, it is now closer to £2.5bn
What happened?
What happened to Virgin Group
Virgin Group capitalised heavily on the rise of SPACs in 2000
SPACs – or Special Purpose Acquisition vehicles – had their moment in the sun during the super-low interest rate environment that prevailed after the pandemic. Hundreds of companies jumped on the bandwagon, netting huge returns for some investors.
SPACs are effectively shell companies used as props to take over private firms and bring them public.
These “blank check companies” were a major driving force behind the 2021 IPO boom. They accounted for 61% of US public listings that year. By 2022, SPACs had already dwindled to 8% of new IPOs, leaving hundreds of underperforming acquisitions and liquidated shell companies behind them.
Virgin used the SPAC boom to take two affiliated companies public, Virgin Orbit and Virgin Galatic. Both were well received by the market.
In 2022, the group had invested over a billion dollars in companies that had listed through these vehicles, according to Bloomberg. These investments, like the rest of the market, have now stumbled.
Satellite launch service Virgin Orbit registered for bankruptcy this year, less than 18 months after completing a merger with blank-check firm NextGen. It reached a valuation of $998m (£800m) in 2022.
Similarly, Virgin Group Acquisition Corp acquired consumer goods company Grove Collaborative in a $1.5bn (£1.2bn) deal in 2021 – only for the value of Grove to sink to $11.4m (£9.1m) from $160m (£128m) in the last three years.
The value of Virgin Galactic’s stake has also plunged from £180m in 2022 to £31m today.
Why did the SPACs fail?
SPACs became popular because they offered lower financial disclosure requirements than traditional IPOs, making the process quicker and simpler.
However, as regulators and courts began to question the SPAC model and interest rates climbed, financial markets turned away from SPACs.
Those that survived found themselves struggling. The average one-year return on a company that went public via SPAC merger in 2021 was -64.2%, according to data from Jay Ritter, a finance professor at the University of Florida.
Risky business strategies, structural flaws in the SPAC process, and higher financing costs meant that many companies struggled to become profitable.
The De-SPAC Index, a basket of companies that completed their tie-ups, has fallen more than 20% this year as many firms. That compares with the nearly 10% rally in the S&P 500 Index.
Is Richard Branson doomed?
The short answer is… probably not.
Branson’s empire is incredibly diversified: assets like a five-star hotel in Mallorca and airline Virgin Atlantic are doing well, while Virgin Group’s licensing arm is making more money than it did before the pandemic.
Virgin Group has also launched new divisions in the hotel and cruise-ship sectors.
Richard Branson’s empire has gone through decades of ups and downs: ventures like record seller Virgin Megastore, Virgin Cola, Virgin Vodka, Virgin Vie (cosmetics) and Virgin clothing have all failed, only to be replaced by new enterprises.
Branson’s foray into SPAC-driven investment seems likely to simply be a similar dip in the cycle.
