SPAC Outlook
Are SPAC groups a smart place to be in going forward? Seems like the buy-side skillset and gaining experience with a new asset class could be a plus, but the recent slowdown in SPACs goes against that. Thoughts?
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This past quarter saw a huge sharp decline in SPAC deals.
SPACs aren’t really a new asset class, blank check companies have been around for over a century. I suspect issuance will go back to it’s pre-2018 baseline. I am interested in seeing the performance of companies that went public via SPAC versus traditional IPO, it’ll be interesting to see what the performance is over time.
It's a bubble and short positions in them have risen dramatically since the start of the year
SEC is about to come in and squash the wave, their rule proposals are due next April.
Just look at Lordstown - IPOing on forward metrics with zero regulatory due diligence is not a long term bet. Many companies going public via SPAC didn't have any prototypes or legit proof of concept and were nowhere near ready to IPO, so expect more blowups than companies taking the traditional listing route. Not the first group I would choose to be in.
I also find it interesting to take a look at the 2015 league tables. https://www.spacresearch.com/underwriter?year=2015 Only 5 BBs, a number of small firms and a fraction of the volume of last year.
I work a lot with the SPAC market. Posts above a bit draconian IMO - we saw a massive SPAC IPO issuance boom in the beginning of 2021 that was clearly not going to last. Now SPAC IPO issuance is back at the monthly levels of 2020, so there are still a ton of new SPAC IPOs happening. The media reports of SPACs falling off a cliff are comparing it to 1Q 2021, which was clearly not sustainable.
2nd point, the existing base of SPACs that have raised capital and are searching for targets is massive. It creates a long tail of “De-SPAC” transactions into 2023, even if you assume no new SPAC IPO issuances going forward and a much higher liquidation rate than historically. The gist of the matter is that if a SPAC raises capital they nearly 100% of the time find a way to deploy that capital instead of giving investors their money back.
I don’t get the watch for the performance of “SPACs to fall off a cliff” comments tbh. After the de-Spac it is just another publicly traded company - it is just another avenue to go public other than an IPO or direct listing. You can say that a individual company that went public via a SPAC is not a good company / should not be public, but saying SPAC public target co’s as a whole in the market are X or Y does not really make any sense.
Going forward, there will still be new SPAC IPOs that are much higher than pre-2020 levels, but definitely not as high as Q4 2020 levels or 1Q 2021 levels. The difference will be is that the serial issuers and instructional funds that are now in the game will be the ones dominating new SPAC issuances. Investors will be more discerning about who is raising a SPAC, you won’t see all these celebrities raising SPACs like earlier in 2021.
Working for a SPAC is a fine move - but I’d look to move to a serial issuer or one for a major institutional investor instead of some just random small one-off SPAC.
The truth is somewhere in the middle usually. SPACs are not going away any time soon.
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