SPACs were being formed at a record pace in Q1’21, but the market has since chilled. Here are the top-line bullets you need to know.
In the early months of 2021, SPACs seemed to still be riding the wave from last summer. The first quarter of the year saw a record 298 SPACs formed, raising $83B — up from 135 deals and $36B the quarter prior.
But the SEC’s April statement — which stipulated new accounting rules for SPACs — roiled the blank-check boom as companies scrambled to double check their financial statements for errors. New SPAC filings plummeted to just 61 in Q2’21.
Despite the slowdown in SPAC filings, there are plenty of blank-check companies formed last year that are still on the hunt for targets to acquire and merge with — the latest of which include Nextdoor and BuzzFeed. SPAC mergers have continued at a breathtaking pace, as private companies search for easy exit opportunities.
WHAT YOU NEED TO KNOW:
- SPACs have exploded over the past year. In 2020, there were 254 SPAC filings that raised $74B. The frenzy only continued through the early months of 2021, which has seen 359 blank-check companies list shares through the end of the second quarter. The burgeoning hype rapidly abated following the SEC’s accounting crackdown in April, however.
- There’s plenty of dry powder left: existing SPACs are still on the hunt. 2021 has already seen 214 completed and announced mergers; the latest mergers include Nextdoor ($4.3B valuation), Alight Solutions ($7.3B), Taboola ($2.6B), and BuzzFeed ($1.7B).
- SPACs are an attractive offering for sponsors and target companies alike. The target company is able to go public quickly without much of the volatility associated with a traditional initial public offering, and sponsors stand to make millions no matter how the acquisition works out.
- But they may be less appealing for retail investors, who are left “holding the bag.” In particular, a slew of electric vehicle (EV) startups, including Fisker, Canoo, Lordstown Motors, Nikola, and Proterra, have gone public via SPAC over the past year to much hype — though few have produced commercial EVs. (Pending EV SPACs include EVgo, Xos, and Lucid Motors). Furthermore, SPAC performance overall has lagged as of May, with median performance trailing the S&P 500 by 15 percentage points, per Reuters.
- Poor performance and heightened regulatory scrutiny have forced investors to tread cautiously. However, the slowdown may bring benefits: the blistering pace of SPAC filings already seemed unsustainable and frothy, while regulatory guidance can safeguard retail investors from investing in speculative, “pre-revenue” companies that have balance sheets in the red.
- The SPAC trend is diffusing across the globe. Bourses are seeing growing interest in SPACs. South Korea and Malaysia remain the only Asian markets that allow SPACs, while Hong Kong and Singapore are reportedly exploring loosening regulations to attract SPAC deals. In Europe, the Amsterdam and Frankfurt exchanges have been popular for SPAC listings like Lakestar SPAC I SE’s $332M (€275M) IPO. Exit appetite for companies based abroad is burgeoning — and local exchanges risk losing out on deals like Grab’s planned $40B SPAC merger.