The bloom appears to be off the rose for special purpose acquisition companies.
SPACs, or blank-check companies, were white hot in 2020 as company after company used them as launching pad into public trading.
But a report by the Wall Street Journal found enthusiasm for SPACs is waning under the specter of looming regulations and some high-profile disappointments.
SPACs are formed for the express purpose of finding and merging with an operating partner. The idea is to speed the operating company to the public markets and avoid the extended process of a traditional initial public offering.
Tens of Billions in Market Value Erased
Shares of half the companies that finished SPAC deals in the ast two years are down 40% or more from the $10 price where SPACs typically begin trading. That slump has erased tens of billions of dollars in market value.
Losses top 60% from the peak about a year ago for many once-hot names like the sports-betting company DraftKings (DKNG) – Get DraftKings Inc Class A Report and Richard Branson’s space-tourism company Virgin Galactic Holdings (SPCE) – Get Virgin Galactic Holdings Inc Report.
The SPAC market has also been suffering amid Nasdaq’s fall into correction territory.
A number of companies are now withdrawing from previously announced SPAC deals, even though they sometimes have to pay millions of dollars to the SPACs for backing out.
The savings and investing app Acorns, which said it planned to go public via a $2 billion SPAC deal with Pioneer Merger PACX in May, ended its SPAC agreement on Tuesday. It became the 10th company to terminate a SPAC deal since early November, the Journal reported, citing Dealogic.
Some 13 SPAC deals were terminated in the first 10 months of last year.
Market and Regulatory Challenges Continue
JDSupra said in a report earlier this month that while 2021 was a record year for SPAC IPOs “market and regulatory challenges continue and are expected throughout 2022.”
The report also cited softening of the private investment in public equity market for a majority of last year.
Meanwhile, a blank-check firm backed by state investor Temasek made its Singapore debut on Thursday, marking the first such local listing, Reuters reported.
This came four months after the Singapore Exchange allowed SPACs to list. The listing of Vertex Ventures’ SPAC also marks the first major debut of such vehicles in Asia.
