SPAC activity in July reached the lowest levels in five years | Mint

SPAC activity in July reached the lowest levels in five years

Photo: iStock
Photo: iStock

Summary

Once-hot blank-check firms have fallen out of favor alongside cryptocurrencies and other speculative investments

 

SPACs were one of the hottest investments on Wall Street early last year, booming alongside cryptocurrencies, meme stocks and other speculative trades as an easy way for buzzy startups to raise money and go public.

Fast forward 18 months and much of the air is out of the bubble. Shares of companies that went public this way have tanked. Some of the firms have already been acquired by other companies. Some startups that previously agreed to go public by combining with special-purpose acquisition companies are calling off deals and electing to raise money privately. Those who set up SPACs stand to lose a lot of money if they can’t find deals.

There are still a few SPAC deals being done, but they are few and far between. The chart below shows how fast SPACs burst onto the scene as a hot investment and endeavor for celebrities then quickly faded. It shows the money raised by each SPAC since the start of 2020, as tracked by Dealogic.

July was the first month in five years that no new SPACs raised money. A few have come to market so far in August, but still at a fraction of last year’s record pace.

Some high-profile SPACs, such as those that later merged with Nikola Corp. and Virgin Galactic Holdings Inc., don’t appear below because the blank-check companies involved went public before 2020.

Many of these SPACs have yet to identify a merger target, as indicated by those in pale green.

A SPAC is a shell company that raises money from investors with the sole purpose of merging with a private company to take it public. After a deal is announced and approved by regulators, the company replaces the SPAC in the stock market. Because SPAC investors don’t know what kind of deal the blank-check company will do, the creators typically have about two years to find a deal or they must return the money to investors and forfeit the millions they spent to set up the SPAC. Investors also get the option to withdraw their money before the deal goes through.

With many on Wall Street vacationing during the dog days of summer, investors are waiting to see whether the stock market’s recent recovery and the new energy and climate spending package will inject new life into the SPAC market later this year.

For SPAC creators, the clock is ticking.

 

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