Shares of special purpose acquisition companies are down following buyout announcements, a marked reversal in the craze for these vehicles at the start of the year that could threaten their ability to close deals.
Of the 13 Spacs that announced acquisitions in May, only one is trading above $ 10, the level at which shares of blank check companies are initially priced, according to a Financial Times analysis of Refinitiv data.
As of March, around nine in 10 were trading above $ 10 following the announcement of a deal, according to Spac Research – and much higher.
Market experts attributed the turnaround to a withdrawal from the market by institutional investors and lack of interest from retail traders, who turned to other speculative assets such as crypto-currencies.
“The retail component of the deals has been a big deal,” said Ari Edelman, partner at Reed Smith. “Much of the activity around Spacs, in terms of stock trading and Spacs success, was largely retail.”
The Spac arrow was largely supported by hedge funds who buy early in the structure and use leverage to increase returns. But the vast majority of them sell out once a deal is announced and are replaced by new investors keen to get a share in the newly listed company. This no longer appears to be the case.
“The decline in retail investors has been particularly bad,” said a major sponsor of Spac. “Retail trade sparked gigantic speculation from September until the bubble burst [in April] and now the Spac market is dead, dead, dead.
Just a few weeks ago Spacs were almost guaranteed a “pop” in the share price once the company announced its merger goal. Sometimes even rumors of a deal, such as with Churchill Capital IV and Michael Klein’s Lucid Motors, have caused the shares of the blank check company to soar 80 to 90 percent.
Today, even large last name transactions fail to attract investors.
Soaring Eagle Acquisition, a Spac set up by serial sponsor and former Hollywood executive Harry Sloan, is trading below $ 10 despite the announcement last week of a $ 17.5 billion deal to return public Ginkgo Bioworks, supported by Bill Gates. Likewise, Aurora Acquisition shares have fallen 10% since announcing a $ 6.9 billion deal with SoftBank-backed mortgage lender Better.
If the trend continues, Spacs could be forced to change the price of their transactions in order to gain shareholder approval. Investors get around $ 10 in cash if they decide not to complete the deal and buy back their shares, which is why the $ 10 threshold is important.
Aeye, which makes lidar sensors used for autonomous driving, revised its deal with a Cantor Fitzgerald-sponsored Spac this month, agreeing to a 20% cut from the $ 1.9 billion valuation announced in February. . The company cited trading in public lidar companies and “changing conditions in the automotive lidar industry” for the difference.
Additional reporting by Madison Darbyshire