Are blank check companies finally paying off or is that just a fantasy (island)?
So far this year, we have seen an explosion of SPACs—and that’s not hyperbole. As of May 24, 325 SPAC vehicles have raised US$102.5 billion between them in the US, towering over the previous record of 248 set for the whole of last year, according to Dealogic.
That’s all well and good but this glut of cash shells is nothing if it can’t find a good home for all that money. Looking at deSPAC activity—when a blank check company secures a deal and merges with it, thereby listing the target company—it seems like that’s finally happening. And the markets are blowing previous records out of the water.
As of mid-May, there have already been 124 SPAC transactions on US exchanges, valued at US$321.7 billion. By comparison, there were 98 deals worth US$213.3 billion in the whole of 2020 and 34 deals totaling US$30 billion during all of 2019, according to Dealogic.
Making waves
This tsunami is also notable for the size of transactions. The average deSPAC this year is valued at US$2.6 billion, up from US$1.8 billion last year and a comparatively paltry US$689 million in 2019.
In a sign of the times, the Nasdaq has played host to the largest deSPAC ever: Altimeter Growth’s merger with Singaporean ride-hailing giant Grab Holdings for an eye-watering initial equity value of US$39.6 billion.
Back to reality
Of course, there are always those who want to throw cold water when things heat up. First, the SEC flagged up an accounting glitch in April (the regulator sees SPAC warranties as a liability, not an asset). Second, there has been a recent rotation out of tech—a sector favorite for SPACs—in favor of stocks that look set to benefit from the cyclical recovery. As a consequence, blank check IPOs have stalled.
After 91 new listings on US exchanges in January, 110 in February and 113 in March, there were only 13 in April, leading some to question their sustainability.
Does this mean SPACs are dead? Or, as Monty Python once argued, are they just resting?
It looks to be the latter—companies are going back to the drawing board, revising their financial statements to comply with the SEC's recent crackdown and reviewing their proposed valuations in light of the market pullback.
It's early days, but this reset is already showing positive signs—15 slightly downsized SPACs priced their IPOs in May. Despite being humbled by recent events, SPACs may be in for the long haul.
