By CultureBanx Team
- 85% of some 300 SPACs that completed reverse mergers though 2022 are trading below their IPO price
- 21 out of 33 SPACs tied to famous public figures posted negative returns
SPAC (special purpose acquisition company) sector has been a major source of corporate finance in the U.S. Currently, 85% of some 300 SPACs that completed reverse mergers though 2022 are trading below their IPO price. The rising tide of a raging bull market since mid-2023 hasn’t lifted the SPAC boats. Companies that went public this way have lost more than $100 billion in market value.
Why This Matters: A SPACs main goal is to raise capital and its major downfall is that there are too many blank check companies willing to do this work. Last year, nearly $30 billion from Special Acquisition Companies had gone back to investors. Wall Street firms including KKR and TPG have all liquidated their SPACs and returned money to investors, as the number of available companies to buy continues to plummet.
According to the De-SPAC index, out of all the companies that have completed their deals, the returns are down by 67% with another 22% below the 2% mark. Early investors in companies that went public via special-purpose acquisition companies sold shares worth $22 billion through well-timed trades, profiting before share prices collapsed, according to The Wall Street Journal. Unfortunately, 85 SPACs currently trade at equity market prices below $1 per share compared to 60 SPACs at the end of 2023 and 38 one year ago, according to FTI Consulting.
The fact that the majority of the SPACs failing are tied to public figures is also another reason why their failure rate is so high. Specifically, 21 out of 33 SPACs tied to famous public figures posted negative returns for 2021, according to Bloomberg. So it’s not a shock to see Tiger Woods’ SPAC fall short of IPO goals. The stock market also tends to be irrational so as soon as the public figure starts to do things perceived as negative, the stock price falls.
It’s not just athlete-backed SPACs that performed pretty dismally, also entertainer-backed SPACs were poor performers as well. If we take a look at rapper and business mogul Jay-Z, his cannabis focused SPAC, The Parent Company, performed the worst with an 84% plunge.
Situational Awareness: The future of SPACs is uncertain though they’re not going away. However, The Wall Street Journal analyzed more than 460 companies that did SPAC deals and identified 232 with insider sales based on a review of Securities and Exchange Commission filings. Clearly problematic for the sector going forward as it’s already losing billions of dollars.
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