Another week and the biggest story in a sea of big stories focuses on SPAC, these empty-check companies that raise capital through an IPO, to acquire a privately held company and take it publicly. But some industry watchers began to wonder: Is this party just beginning, and are still teetering with early guests? Have we reached the peak of the party, the music is still humming? Or someone barfed quietly in the corner, a sure indicator that it’s time to hammer someone’s coat?
It definitely feels that things are in full swing. To this day, Bee Capital, the venture firm founded by Facebook cofounder Eduardo Severin, had lodged plans to raise $ 300 million SPAC. Mike Cogni, a fintech entrepreneur who founded Sophie and recently founded Chitra, a fintech company in both the home equity and blockchain space, raised $ 250 million for its SPAC. Even Michael Dell has made the leap, with his family’s office planning to register the $ 500 million Blanc-Check company by this afternoon.
In total, according to Renaissance Capital, 16 empty-check companies paid $ 3.4 billion this week, and new filers continue to flood the IPO pipeline, with 45 SPAC filings submitted this week (compared to 10 traditional IPO filings) We do. It is perhaps no surprise that we are starting to see a headline like yesterday in Yahoo News, titled “Why Some SPAC Investors May Burn.”
Interestingly, such headlines can help puncture SPAC bubbles. So argues INSEAD Professor Ivana Naumovska in a new Harvard Business Review piece titled, “SPAAC Bubble About to Burst.”
Naumovska indicates research that when more people adopt a practice, it will become increasingly widespread due to increased awareness and validity. (See Club House.) But when it becomes somewhat more controversial – about which it can be argued that there are SPACs – external concern and skepticism also increase as the practice becomes more widely used. Thus Yahoo is born in the headlines like the one in finance.
Naumovska has studied the phenomenon, focusing on earlier reverse mergers, as she notes, “escalated in the mid-2000s, outpacing IPOs in a few years, and a rock fall in 2011. Before it reached its peak in 2010. ” She says she and her fellow researchers collected a heap of data on the use of the reverse merger and the market reaction to them, including how the media evaluated such vehicles. Of the 267 articles published between 2001 and 2012, she states that 6 were positive, 148 were neutral, 113 were negative.
Notably and surprisingly, negative articles grew as the number of reverse merger transactions joined firms with relatively low reputation. Then, the same happens whenever the “IPO window” is open. Great companies go public, then good companies, then half-hearted companies that think they can get along with others. Except that the media chooses these companies, as regulators do, and investors, along with regulators, and the media feed each other’s signals, the party usually comes to a scary halt.
In reality, too much coverage around SPACs remains positive for neutral. If business journalists are privately skeptical about SPAC, they are making the decision, presumably because some avoids excessive cases – such as electric truck startup Nikola who were accused of fraud – yet to criticize There is not much.
This is partly because these things appeared so sudden that public shareholders are still trying to understand them.
The rationale that most investors have for creating SPAC – is that a lot of so-called units are ready to be publicly traded – also resonating, given how bloated the private market is.
It is also impossible to judge many SPACs raised in the last six months, as they do not yet have their goals to declare (they have two years when they raise funds from investors in a company minus or Then they have given back) those IPO proceeds).
Meanwhile, some merger deals that critics had long hoped would not begin, like Virgin Galactic, a space tourism company that kicked off the SPAC craze when it went public in the fall of 2019.
Sir Richard Branson founded the company in 2004 to fly passengers in space on sub-space travel, but even after re-planning last week to try a rocket-powered flight again, its shares – Those more than double since January – stay in the rhetorical stratosphere. (The company, which reported almost no revenue last year, is currently valued at $ 12 billion.)
The other offerings did not go very smoothly. Clover Health, a health insurance company that, like Virgin Galactic, was taken publicly through a SPAC organized by renowned investor Chamath Palihipitiya, as a deep dive by Forbes, posed “existential threats to its business” “Sangam”.
Among others, who are “digging into Clover’s business practices, including how the company encourages doctors and patients to buy their insurance and use its technology,” the Department of Justice, the Securities and Exchange Commission and the influential short – are sellers. (Clover has denied the allegations, but it reportedly still faces at least three class-action lawsuits that failed to disclose further to the company’s IPO that the DOJ was investigating the company. )
In a conversation with this editor of SPAC Frenzy, skeptic Steve Jurvetson said last month, “I don’t get it.” The veteran venture capitalist who sits on the board of SpaceX said that there are some good companies [being taken public]. Do not get me wrong; Not all of them are insidious. “But there are many” early-stage venture companies, “he said,” and they don’t need to meet the forecasting requirements that the SEC usually requires IPOs, so [SPAC sponsors are] Specifically looking for companies that have no operating number to show [because they] They can make any forecast they want. . . This is the entire racket. “
If others agree with Jurvetsan, they hesitate to say so publicly. For one thing, many patriarchs would be happy to see their portfolio companies become publicly possible; Those who have not formed their own SPAC are giving them the right to consider the road.
Ed Sim of Boldstart Ventures in New York is one of the few vice chancellors in recent months who can say simply, when asked if his firm is not considering increasing SPAAC at any point. “I have zero interest in that honesty,” Sim says. “If you see my name or boldstart, you can come back to me [affiliated] With SPAC for two years from now, ”he laughs.
Many more investors insist on who it is that sponsors. Among these is Kevin Mayer, former Disney exec and, in short, CEO of the social network TikTok. In a call yesterday, he mentioned that “there are many fewer public companies now than 10 years ago, so there is a need to supply another way to go public.”
The Mayor has a vested interest in promoting the benefits of SPAC. Just yesterday, with former Disney affiliate Tom Staggs, he registered plans for a second SPAC, with it being announced earlier this month that his first SPAC would be used to take on digital fitness specialist Beachbody Company.
But Mayer also argues that not every SPAC should be judged by the same yardstick. “Do I think it’s overdone? Sure, everyone and their brothers are getting in for a SPAC now, so yeah, that sounds a little ridiculous. But I think …. Wheat off the cuff very soon Will be separated. “
It was better if SPAC had to endure. Working against SPAC sponsors are already numbers that are trending into it and it doesn’t seem so big.
At the end of last week, Bloomberg Law reported that dating back to January 1, 2019, based on its analysis of companies that went public as a result of a merger with SPAC, and for which at least one month post-merger performance data Are included. Available, 14 out of 24 (or 60%) reported depreciation in value one month after the merger was completed, and one-third of the companies reported year-over-year depreciation in value.
The number of securities lawsuits recorded after the merger of SPAC stockholders is also increasing, the outlet noted.
Certainly, SPACs – recently heralded as a permanent fix for a broken IPO market – may still prove sustainable.
but Along with the speed at which SPAC is being formed, some companies in their sightseeing – some of them still Prototype stage – The question is whether the incident is permanent or not And started asking.