Amber Murray
Tue, 16 April 2024
Virgin Atlantic expects to return to profit in 2024.
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 2021.
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 in 2023, less than 18 months after completing a merger with blank-check firm NextGen. Virgin Group’s stake in the business reached a high valuation of $998m (£800m) in July 2022.
Similarly, Virgin Group Acquisition Corp merged with consumer goods company Grove Collaborative in a $1.5bn (£1.2bn) SPAC deal 2021. The value of Grove has fallen more than 90 per cent since the deal completed. The firm has a market value of just $61m (£49m).
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.
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.
What’s more, the billionaire is set to receive a £400m payout from the sale of Virgin Money to Nationwide for £2.9bn.
A Virgin Group spokesperson said: “For more than 50 years, Virgin has built consumer-facing businesses and brands that shake up markets and create a lasting impact. During the past year, the Virgin Group has achieved significant growth and industry firsts.
“From making history with Virgin Atlantic’s Flight100 – which was the first time 100% SAF has been flown in both engines by a commercial airline across the Atlantic – to launching Virgin Hotels in New York and Edinburgh. Virgin Voyages has also achieved exponential growth in bookings and we have opened our exclusive Virgin Limited Edition Son Bunyola property in Mallorca.
“The Virgin Group continues to strengthen post-pandemic whilst successfully financing its evolving portfolio: investing in and growing businesses that demonstrate Virgin’s purpose of Changing Business for Good.”
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 or been sold 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.
This article was updated to reflect the fact the value of Virgin Galactic has collapsed, not the company itself. The article has also been updated to show Virgin launched its SPACs in 2021, not 2000 and its stake in Virgin Orbit peaked in July 2022.
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