Shares of companies that went public through deals with “blank check” companies have fallen an average of two-fifths from their peaks, as appetite for the once-hot sector of the US stock market has plummeted. cools quickly.
Of the 41 special purpose acquisition companies that have closed deals since the start of 2020, only three are even within 5% of their share price peaks. Eighteen of them fell by more than half and several fell by more than 80%. The average decrease is 39%.
The figures come from a Financial Times analysis of Refinitiv data following Spacs which have acquired companies worth more than $ 1 billion, and are set against the backdrop of a larger U.S. stock rally that created a new high during the past week.
Spacs – shell companies that raise funds from investors via a listing on the promise to merge with an unidentified private company – have been among the most active segments of global markets over the past year. Almost half of the $ 230 billion raised worldwide in new listings went to Spacs.
Less than two months ago, investors were still enthusiastically researching Spac higher shares after companies announced their acquisition plans. Groups ranging from EV developers and software vendors to mortgage originators have chosen to go public through deals with a Spac instead of the traditional route of an initial public offering.
But deals are now taking longer to close, as regulators take a closer look at the disclosures and revenue forecasts of the companies and institutional investors who typically fund the deals. show more caution. As a result, Spac’s new launches have slowed to a trickle.
Columbia Business School professor Shivaram Rajgopal said historically during a market frenzy there were more underperforming companies that went public as they tried to ride the wave. , and this trend was true for Spacs.
“When there’s overvaluation, when sentiment goes crazy, the most marginal business is likely to go public,” he said.
The drop in the share price and the slowdown in new transactions suggest that retail investors and other market participants are cooling off, especially on start-ups with little to show in terms of revenue or often even a loss. product, which were among those whose stocks rose the most during the period. boom.
Shares of electric vehicle start-up XL Fleet climbed nearly 70% to a high of $ 35 after its IPO via a Spac in December, before falling 80% to just under $ 7 the following months. Tortoise Acquisition Corp, the shell company that went public with truck parts maker Hyliion, saw its stock price rise five times after the merger was announced, but it is also on the list of declining stocks. more than 80%.
Of the Spac deals closed since January 2020, eight have fallen so sharply that they are now trading below the $ 10 that Spac shares were initially valued at when the cash was first raised.
This includes the two largest blank check deals to date, home loan originator United Wholesale Mortgage and healthcare group Multiplan, which went public in deals with Spacs backed by the billionaire investor. private equity firm Alec Gores and former Citigroup trader Michael Klein, respectively.
Shares of Spacs, which are still looking for contracts, also fell. More than two-thirds of the 425 blank check companies listed since January are trading below $ 10, according to an FT analysis of Refinitiv data. This may suggest that investors are skeptical about seeking acquisitions that add value.