The SPAC Bubble Is Deflating

Prolonged bear market might have hastened its collapse.

The Wall Street Journal in its April 26, 2023 report, “SPACs Delivered Easy Money, but Now Companies Are Running Out,” revealed an unraveling of the SPAC phenomenon. It notes:

“The SPAC boom took hundreds of risky companies to the stock market. The next stop for many is bankruptcy court. Dozens of companies that merged with SPACs are running out of cash, joining at least 12 that have already gone bankrupt after combining with special-purpose acquisition companies.”

A couple years back we had rampant SPAC mania during a raging bull market. On March 5, 2021, I had published my rather sardonic SPAC-analysis, “The SPAC Phenom — Behind Startups’ Urge To Merge — List It Or Lose It!” In it I had concluded quite skeptically:

“Notwithstanding all the chest thumping that is going on with SPAC-palooza, the more things appear to change, the more they have remained the same for the average Joe investor. It will probably take another nearly decade-long investment frenzy — à la, the 1980’s junk bond-financed leveraged buyout (LBO) mania, or the 1990’s venture capital-financed dot com bubble, or the 2000’s subprime mortgage-financed real estate hysteria — to burst the 2020’s SPAC-financed direct listing bubble. As with all of our previous financial passions, the fallout from SPACulation won’t be without pain — to be forewarned is to be forearmed!”

But I was way off mark as to the timing for the bursting of “the 2020’s SPAC-financed direct listing bubble” in suggesting, “It will probably take another nearly decade-long investment frenzy.” In its January 30, 2023, S&P Global Market Intelligence report, “SPAC IPOs, deals fell in 2022,” points out:

“There were 86 SPAC IPOs in 2022, compared to 610 in 2021… IPOs by SPACs in 2022 raised a combined $13.42 billion, compared with $160.75 billion in 2021.”

Per a recent Statista report, “Number of special purpose acquisition company (SPAC) IPOs in the United States from 2003 to April 2023,” there have been only 11 SPAC IPOs as of April 18, 2023 11:00 GMT. So, even as the SPAC bubble continues to deflate, there is a silver lining in the SPAC cloud for “some startups and other potential target companies” per a detailed analysis by the Boston Consulting Group in its January 31, 2023 report, “The SPAC Bust Could Be a Boon for Targets.”

Nonetheless, it’s critical for investors to keep track of fads, facts and fiction in the financial marketplace. Because like that other 2021 rage — the Non-Fungible Token — proved, money invested in NFTs turned out to be very fungible. Even worse, the collapse of several crypto currencies and bitcoin exchanges in the past couple of years — largely due to the usual financial shenanigans by the management of these companies — is unfairly tarnishing the underlying blockchain technology that enables crypto products and services. But that’s a story for another day. Happy investing and let’s hope this SPAC-dooming bear goes into hibernation soon!