SPACs have been having a rough time as speculative stocks with low earnings decline in value. SPACs are also known as special purpose acquisition companies. They raise money through an IPO and then use the capital to merge with a private company and take it public.
After enjoying a record year in 2021, SPACs suffered at the hands of the tech-driven sell-off last month. According to data from SPAC Research, SPACS raised more than $160 billion on US exchanges in 2021, roughly doubling the previous year’s level. Investors used to flock into these blank check companies hoping to score big.
Many SPAC sponsors have now been forced to abandon their planned partnerships because of the market sell-off, sometimes even before the SPACs were listed. There are currently around 600 SPACs looking for a company to acquire. And as the market becomes more competitive, many acquisitions have fallen through.
Fintech app Acorns planned to go public via a $2.2 billion SPAC deal with Pioneer Merger Corp, but plans were scrapped. Now, Acorns must pay Pioneer $17.5 million in termination fees. According to SPAC Research, there were about 20 such cases in January, up from single digits in the previous two quarters.
SPACs are extremely volatile due to their speculative nature, so it’s possible we are witnessing the SPAC bubble burst. Do you agree or do you disagree and think SPACs will perform well going forward?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.