More than two years after they were first proposed, the Securities and Exchange Commission’s new rules governing special purpose acquisition companies, or SPACs, finally are set to go into effect on July 1.
The expectation of tougher requirements, along with the disastrous stock market performance of most SPACS, has already led this market to sink — but it hasn’t killed it. In fact, 2024 is on pace to outdo 2023, which was the worst year for SPACs since 2016, in terms of dollars raised through the IPO market, according to SPAC Insider.
Halfway through this year, SPACs have already raised $2.5 billion, compared with $3.8 billion for the entirety of 2023, according to SPAC Insider. It calculates that are 34 SPACS that have either filed to go public, are searching for a merger partner or have completed a deal, compared with 42 for all of 2023, The average size of the SPAC IPO is slightly bigger, too, at $156.5 million compared with $124.1 million in 2023.
Those numbers are still tepid when compared to the heady days of 2020 and 2021, when SPACs raised about $246 billion. However as much as 40 percent — or more — of that haul likely went back to investors as hundreds of SPACs failed to find a merger partner in the requisite time period and liquidated. Between 2020 and 2022, SPAC Insider said that 365 SPACs failed to find a merger partner and were liquidated out of a total of 960 SPACs.
And that time frame is likely to shrink. Among other more stringent requirements on disclosure and liability that will put SPACS on an equal footing with other IPOs, the new SPAC rules have provided guidance about the time period that SPAC sponsors can hold onto investors’ money without inking a deal with a merger partner. They say that a SPAC should find a partner within 12 to 18 months or it could be at risk of being regulated as an investment company, with the more onerous regulations involved.
Yet optimists persist among those invested in earlier deals. Out of 118 SPACs that have found a partner — but not yet merged with it — the returns are negative for only four companies.
The top performing SPAC is Ault Disruptive Technologies, whose shares, as of market close Thursday, are up 69 percent since launch in December of 2021. The stock took off in June after it announced a deal to merge with Gresham Worldwide, a technology company that works with U.S., Israeli, and UK defense and aerospace industries, as well as consumer companies.
Tech deals, however, have largely been a bust. Early investors may get out with gains. But post-merger, in what is called a deSPAC, technology deals have one of the worst performances of all deSPACs. The sector’s returns have fallen by a median 88.6 percent, faring only slightly better than cannabis, electric vehicles, biotech, space, and healthcare, according to SPAC Insider.
Despite those realities, the returns of a few older SPACs that have not even come up with a partner are also in the double digits. New Providence Acquisition Corp. II has a return on investment of more than 40 percent since it was launched in November of 2021 . It is looking for a deal in the consumer sector but hasn’t found one yet. Shareholders recently gave it a second extension of the time to do so, with the deadline now in November—possibly encouraged by the success of the sponsor’s first SPAC. New Providence Acquisition Corp. merged with ASTSpaceMobile, in April 2021 and is one of the few DeSpacs to be trading above its $10 IPO price, now trading at more than $11 per share.
Another top-performing SPACs that is still on the hunt for a company to merge with is Corner Growth Acquisition 2, which boasts a 23.2 percent return on investment since it went public in June of 2021. The SPAC’s CEO is veteran venture capitalist Marvin Tien, founder of Corner Capital Management. The SPAC, which is Corner’s second, is looking for a technology partner and now has a deadline of December 31 after shareholders agreed to extend it. Its top investors as of the end of the first quarter included UBS O’Connor, Alberta Investment Management, Healthcare of Ontario Pension Plan Trust Fund, Mangrove Partners, Moore Capital, and Fir Tree Capital.
Both of these SPACs are looking for a partner in areas that have been nothing short of a disaster for investors in the long run. Consumer deals have fared little better than the 88.6 percent decline for technology deals. De-SPAC consumer shares have fallen a median 86.5 percent, according to SPAC Insider.
