SPACs - Special Purpose Acquisition Company

What is SPAC

SPACs raise money from investors and then within two years look for an opportunity to acquire another business, usually private.

If they fail to meet the targets, then investors can decide to return their investments at the price of the initial public offering, using their right to repurchase.

In this sense, it can be seen as a safer investment than bonds because of the very distant risk of default.

2022: Global SPAC deals fall 44%

In early January 2023, the business intelligence platform CB Insights released the results of a study of the global SPAC deal market. We are talking about agreements involving companies created specifically for merging with private firms that want to go public, bypassing the procedure for the initial public offering of securities (IPO).

It is estimated that in 2022 the number of SPAC transactions on a global scale decreased sharply: it amounted to only 78 against 140 in 2021. Thus, a fall of 44% was recorded. This situation is explained by the difficult macroeconomic situation, the crisis in the United States and market uncertainties. Investors reduced investments in companies, fearing increased risks. In addition, a high level of inflation has a negative impact on the industry, due to which interest rates have changed.

In the fourth quarter of 2022, only 13 SPAC transactions were concluded in the world. For comparison: a year earlier, the result was 38, and in the third quarter of 2022 - 29. In the period from October to December 2022, the largest SPAC deals were carried out with the participation of ECARX (estimated at $3.8 billion), Getaround (about $1.2 billion) and Tempo Automation ($919 million). In addition, agreements have been concluded with OmniAb, SatixFy, New Amsterdam Pharma, Cardio Diagnostics, ZyVersa Therapeutics, Seastar Medical and EDX Medical.

In the financial technology segment, the number of SPAC transactions in 2022 was only nine against 19 in 2021. In the retail sector, this figure decreased from 16 to 10. Four agreements have been concluded in the digital healthcare segment, while in 2021 there were 18. If we consider the exclusively American market, then the number of SPAC transactions in 2022 more than doubled, amounting to only 44 (112 in 2021).^[1]

2021

125 startups went public through SPAC (+ 247 %)

In 2021, around the world, 125 startups went public through the sale of companies without assets (SPAC), which are specially created for accelerated listing bypassing the classic IPO. This is 247% higher than the number of transactions completed in 2020. Such data in January 2022 were released by CB Insights analysts.

For comparison: in 2021, 950 IPOs were completed against 647 a year earlier. The average market capitalization of the company, which became public through the SPAC mechanism, in the world amounted to $1.6 billion (+ 100% compared to the previous year), while the IPO indicator amounted to $547 million.

The average market capitalization of the company, which became public through the SPAC mechanism, in the world amounted to $1.6 billion

At the end of 2021, 16 fintech startups entered the stock exchange through dummy companies against 4 in 2020. In the technology sector for retail, the number of such placements in comparison with the same periods increased from 2 to 15, in the digital healthcare segment - from 1 to 17.

Most of the stock listings conducted in 2021 through the SPAC fell on the United States - 103 against 30 in 2020. In Canada, 2 such transactions are registered, in Europe - 11, in Asia - two, in Latin America - one.

Comparison of M&A deals, IPOs and stock exchanges through SPACs

The largest outlets through SPAC included listings of the Singapore taxi and delivery service Grab (estimated at $39.6 billion), a developer of technologies for unmanned vehicles (Aurora $11 billion), a manufacturer for software cargo transportation (Embark Trucks $5.2 billion) e-commerce and a company working in the field of Vacasa ($4.5 billion).

According to experts, SPAC has become an attractive IPO alternative for startups to go public, since this method allows listing faster. This segment is likely to grow more slowly in 2022, given that some countries, including Russia and the United States, plan to regulate it, the study says.

State Of Venture GLOBAL 2021

Charges against the world's largest SPAC by a U.S. regulator in solely investing activities

The largest SPAC ever to enter the market operates illegally as an investment firm, a new lawsuit against billionaire Bill Ackman's Pershing Square Tontine Holdings Ltd. alleges in August 2021.

A lawsuit by shareholder George Assad could have wide-ranging implications for the financial industry if the court decides that SPACs as a whole should be treated as investment companies subject to the Investment Companies Act of 1940, which requires registration with the SEC and sets limits on remuneration for investment advice.

According to the law, the main activity of the investment company is investing in securities, the lawsuit says, and this is "practically the only thing that PSTH did." Ackman denied the claim.

Yandex invested $131.2 million in several IPOs involving SPAC

In January-March 2021, Yandex invested $131.2 million in several IPOs carried out with the involvement of special SPAC companies. The Russian Internet giant announced this in documents sent to the US Securities and Exchange Commission (SEC) and published on April 1, 2021.

Yandex monetized a small part of the investment by selling SPAC shares for $6.1 million. At the same time, the company did not disclose which SPAC projects it had invested in.

As an informed source told Forbes, we are talking about standard corporate investments. At the same time, Interfax notes that Yandex, which has formed a giant liquidity cushion by the standards of the IT industry, invested part of the accumulated funds in a way that was unexpected for the market - not in its own, but in other people's projects.

Yandex invested $131.2 million in several IPOs carried out with the involvement of SPAC

The SEC itself has previously warned of big risks when investing in SPAC, and this method of going public is very different from traditional IPOs.

You should never invest in SPAC just because one of the famous people sponsors, invests or says that this is a good investment, the regulator said.

The SEC says sponsors may have conflicts of interest, so their economic interests in the SPAC may differ from those of shareholders.

Investors should consider these risks carefully. In addition, while SPACs often have the same structure, each SPAC can have its own unique features, and it is important for investors to understand the features of each SPAC in question, the SEC said.

According to Refinitiv, cited by Reuters, the total volume of SPAC transactions worldwide from January to March amounted to approximately $170 billion. Experts attribute the SPAC boom to the large amounts of aid that central banks allocate to restore the economy after the coronavirus. The average time it takes for the SPAC to find a merger deal has fallen from 17 months in 2018 to five months in 2020.^[2]

Asia and Europe aim to catch up with US on SPACs investment development

Near-zero interest rates have pushed Asia's wealthy to find alternative investment channels such as SPACs sponsored by large private equity funds such as KKR & Co. and billionaires including Adrian Chen, Lee Ka-shing and Richard Lee.

Asian financial centers aren't the only ones looking to cover much of the U.S.-dominated SPAC market.

SPACs Volumes by Region as of March 03, 2021

The UK wants to simplify the rules to make the SPAC float in London more attractive.

Notes