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Amid the 2021 mania, SPAC deals were 59% of the total new listings in 2021.
The special purpose acquisition company (SPAC) boom that dominated in 2021 has been gradually increasing, and it seems it has eventually come to a halt. Amid lockdowns, 613 companies went public through SPAC deals last year, with more private companies going public. The number represents a whopping 91% surge from the 2020 record, raising a total of $145 billion. Private companies use SPAC deals to gain entry into the public markets. Also, the public benefits from access to early-stage growth companies and private equity-like investment managers.
SPAC Boom Dies after 2021 Mania
After the SPAC boom that contributed to a record initial public offering (IPO) year in 2021, there was no issuance in July 2022. Amid the 2021 mania, SPAC deals were 59% of the total new listings in 2021. CNBC calculations of SPAC Research data show that no special purpose acquisition company issuance happened in July, with the market buzz finally halting. Investors have started shifting their focus as interest amid increasing regulatory pressure. Many companies are unable to meet inflated outlooks after going public through SPAC. This has discouraged investors who have started turning their backs against hypothetical high-growth equities with no proof. At the same time, regulators are beginning to look into deals that enticed investors with puffed-up guidance.
A finance professor at the University of Florida, Jay Ritter, thinks the SPAC boom was a “once-in-a-lifetime experience.” Ritter said the situation is similar to during the internet bubble. He added:
“A year ago, the whole market was overpaying and now we have a rest. Giving a valuation of $500 million on a zero revenue company… Those days are gone.”
At the peak of the SPAC mania, Nikola Corporation (NASDAQ: NKLA) said it would buy storage battery manufacturing company Romeo Power (NYSE: RMO) in a $144 million all-stock transaction. At the time of the annulment, the all-stock transaction valued Romeo Power at 74 cents per share. Based on its trading price at the time, the transaction was a 34% premium to the storage battery company. The deal value was around 10% of Rome Power’s valuation when it merged with SPAC less than two years ago.
SPAC Deals Liquidate
While only one SPAC was liquidated in 2021, about 10 SPAC deals have been liquidated in 2022 as the boom subsides. Many of the deals are liquidating due to the inability to meet targets. Overall, SPAC issuance is drying up, and the boom has eventually gone into silence.
The deputy head of US equity research at British multinational bank Barclays, Venu Krishna, commented:
“We expect the acquisition landscape to remain highly competitive, and caution that many SPACs are likely to be pressured on time to find suitable targets.”
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