JPMorgan is calling the top for SPACs – and says declining day-trader interest is to blame

Stock Market Bubble

The SPAC boom that defined market euphoria in 2020 and continued into 2021 has officially peaked, according to a Wednesday note from JPMorgan.

Since February, performance in SPAC stocks has materially underperformed the S&P 500, and new deal activity with SPACs has plummeted in April following a strong start to the year.

The Defiance Next Gen SPAC Derived ETF is down 25% from its February peak, and is down 9% year-to-date.

The decline in SPAC activity has been driven by a decline in retail traders pouring money into the new deals, as well as increased regulatory scrutiny from the SEC, according to JPMorgan.

The bank highlighted that SPAC reverse mergers “come and go in waves” as they tend to exhibit boom and bust cycles.

“The boom [is] typically driven by momentum and imitation by sponsors, investors, and target companies looking to take advantage of strong equity market demand conditions, and the bust [is] typically triggered by the emergence of poor quality players, strong levels of dilution for shareholders, waning hype by retail investors and regulatory concerns,” JPMorgan explained.

So far this year, more than 308 SPAC IPOs have raised $100 billion in proceeds, according to data from SPACInsider. In 2020, 248 SPAC IPOs raised $83 billion in proceeds. More SPAC deals were raised in the first quarter of 2021 than all of 2020.

“The acceleration in SPAC activity in Q1 was so strong that was more reminiscent of a peak especially when combined with the emergence of poor quality players and regulatory scrutiny during the first quarter,” JPMorgan said.

New SPAC offerings in April have been almost non-existent, with last week marking the first week with zero new SPAC debuts for the first time since March 2020.

Read more: SPAC short-sellers have taken home $500 million in 30 days. These are the 10 most profitable blank-check companies to bet against right now.

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A SPAC backed by an LA Dodgers co-owner will take online ticket marketplace Vivid Seats public at a $2 billion valuation

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LA Dodgers owners of Guggenheim Baseball Management, LLC – (from left) Stan Kasten, Mark Walter, Earvin Magic Johnson, Peter Guber, and Todd Boehly during the press conference to introduce the new owners of the Dodgers at Dodger Stadium in Los Angeles, CA on May 2, 2012.

  • A SPAC backed by LA Dodgers co-owner Todd Boehly is taking online ticket marketplace Vivid Seats public.
  • The deal will put the combined valuation of both companies at $1.95 billion.
  • The SPAC, Horizon Acquisition, will provide around $769 million of gross proceeds to Vivid Seats, including a $225 million PIPE.
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A blank check company backed by Los Angeles Dodgers co-owner Todd Boehly announced Thursday that it is taking online ticket marketplace Vivid Seats public, putting the combined valuation of both companies at $1.95 billion.

Boehly’s Horizon Acquisition SPAC will provide around $769 million of gross proceeds to Vivid Seats, including a $225 million private investment in public equity, or PIPE, at $10 per share from investors including Fidelity Management & Research Company and Eldridge Industries, which Boehly is CEO of.

The new company will be led by Vivid Seats CEO Stan Chia. Boehly, chairman and CEO of the SPAC, will join the Vivid Seats’ board of directors.

“Vivid Seats has built an impressive technology platform, as well as a substantial customer base,” Boehly, who is also the founder of Eldridge Industries, said in a statement. “Vivid Seats is a scaled, growing and highly profitable marketplace that will be well-positioned to drive continual long-term growth.”

Vivid Seats is a live portal that connects fans with ticket sellers across. The Chicago-based company is poised to take advantage of consumers’ pent-up demand – after being locked in their homes due to the pandemic – to attend sports, concert, and theater events as Covid-19 restrictions worldwide ease.

The online ticket marketplace currently supports over 12 million customers and 3,400 sellers across more than 200,000 listed events. Founded in 2001, the company counts ESPN and The Rolling Stones as its partner, among others.

Evercore is acting as financial and capital adviser to Vivid Seats, while Credit Suisse, Deutsche Bank Securities and RBC Capital Markets are advising Horizon on the deal.

SPACs, shell companies seeking to merge with private companies with the intention of taking them public, have boomed.

In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But by April of this year, 308 SPACs have raised $99.7 billion, comprising 65% of all IPOs.

While the boom in SPACs has slowed recently, Goldman Sachs said these could still drive $900 billion of dealmaking over the next two years.

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A SPAC backed by an LA Dodgers co-owner will take online ticket reseller Vivid Seats public at a $2 billion valuation

GettyImages 576940202 (1)
LA Dodgers owners of Guggenheim Baseball Management, LLC – (from left) Stan Kasten, Mark Walter, Earvin Magic Johnson, Peter Guber, and Todd Boehly during the press conference to introduce the new owners of the Dodgers at Dodger Stadium in Los Angeles, CA on May 2, 2012.

  • A SPAC backed by LA Dodgers co-owner Todd Boehly is taking online ticket marketplace Vivid Seats public.
  • The deal will put the combined valuation of both companies at $1.95 billion.
  • The SPAC, Horizon Acquisition, will provide around $769 million of gross proceeds to Vivid Seats, including a $225 million PIPE.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

A blank check company backed by Los Angeles Dodgers co-owner Todd Boehly announced Thursday that it is taking online ticket marketplace Vivid Seats public, putting the combined valuation of both companies at $1.95 billion.

Boehly’s Horizon Acquisition SPAC will provide around $769 million of gross proceeds to Vivid Seats, including a $225 million private investment in public equity, or PIPE, at $10 per share from investors including Fidelity Management & Research Company and Eldridge Industries, which Boehly is CEO of.

The new company will be led by Vivid Seats CEO Stan Chia. Boehly, chairman and CEO of the SPAC, will join the Vivid Seats’ board of directors.

“Vivid Seats has built an impressive technology platform, as well as a substantial customer base,” Boehly, who is also the founder of Eldridge Industries, said in a statement. “Vivid Seats is a scaled, growing and highly profitable marketplace that will be well-positioned to drive continual long-term growth.”

Vivid Seats is a live portal that connects fans with ticket sellers across. The Chicago-based company is poised to take advantage of consumers’ pent-up demand – after being locked in their homes due to the pandemic – to attend sports, concert, and theater events as Covid-19 restrictions worldwide ease.

The online ticket marketplace currently supports over 12 million customers and 3,400 sellers across more than 200,000 listed events. Founded in 2001, the company counts ESPN and The Rolling Stones as its partner, among others.

Evercore is acting as financial and capital adviser to Vivid Seats, while Credit Suisse, Deutsche Bank Securities and RBC Capital Markets are advising Horizon on the deal.

SPACs, shell companies seeking to merge with private companies with the intention of taking them public, have boomed.

In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But by April of this year, 308 SPACs have raised $99.7 billion, comprising 65% of all IPOs.

While the boom in SPACs has slowed recently, Goldman Sachs said these could still drive $900 billion of dealmaking over the next two years.

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SPACs could drive $900 billion of dealmaking over the next 2 years despite the boom slowing, Goldman says

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Southeast Asian ride-hailing app Grab is set to go public in a $40 billion SPAC deal.

The boom in special-purpose acquisition companies, or SPACs, may have slowed of late, but it could still drive $900 billion of dealmaking over the next two years, according to Goldman Sachs.

“We estimate $129 billion of SPAC capital is currently searching for a target,” Goldman analysts, led by David Kostin, said in a note on Wednesday.

“In spite of the issuance slowdown and sell-off, SPACs could drive a total of $900 billion in M&A enterprise value in the coming 24 months.” Enterprise value is the total value of a company, including its market capitalization, cash and debt.

A record 277 blank-check companies issued shares in the first quarter, raising $91 billion from investors. It helped power the strongest first quarter for dealmaking in 40 years, topping even the dotcom bubble of 2000.

A SPAC is an entity that exists solely to list on the stock exchange to raise money, in the hope of finding and merging with a target company to take it public. They can be incredibly lucrative for early supporters, and offer companies a less onerous and costly way of listing on the stock exchange.

On April 13, Asian ride-hailing company Grab agreed to go public through a $40 billion merger with the Altimeter Growth Corp SPAC. Trading platform eToro will also list through a $10 billion SPAC deal.

But the SPAC boom has slowed in recent weeks. Just six new SPACs have come to market so far in the second quarter, Goldman said, compared to 55 at the same point in the first 3 months of the year.

Goldman said signals from US regulators that they are concerned about various aspects of the SPAC frenzy, including the reporting, accounting and governance of SPACs, has been the key factor weighing on the market.

Nonetheless, there were 394 SPACs seeking companies to take public as of Wednesday, with $129 billion of equity capital, Goldman said.

The bank’s estimate that blank-check companies could drive $900 billion in dealmaking over the coming years assumed active SPACs find targets and close deals, and that future acquisitions are structurally similar to transactions announced so far in 2021.

Goldman Sachs itself has been a key driver of the SPAC boom. The blank-check phenomenon helped power record investment banking revenues in the first quarter.

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Legendary investor Bill Miller says the window is closing on the SPAC market, but singles out 2 names that remain attractive

Bill Miller

Legendary investor Bill Miller thinks the SPAC craze may be nearing the end.

Pushed by a frenzy of excitement from retail investors and a desire from many pre-revenue companies to take an easier path to public markets, SPACs have boomed in 2020 and 2021.

“I think that game is largely winding down now,” Miller told CNBC on Tuesday. “Many of the SPACs that came public came at extraordinarily expensive valuations. But now some of them have corrected.”

The billionaire pointed to some SPACs that now have more reasonable valuations, such as Desktop Metal, a 3D metal printing technology provider that famed investor Chamath Palihapitiya also backed. The company went public in a merger with blank check company Trine Acquisition. The stock peaked at $31.25 on February 1 before tumbling to $12.70 as of April 20.

Miller also said he likes Metromile, a US-based pay-per-mile insurance technology that merged with SPAC Insu Acquisition in February. The billionaire called it the “next wave of insurance company.” Metromile shares have tumbled 50% since their public debut.

Miller also named specific stocks including Amazon, Alphabet, Facebook, and Apple, which he said his fund no longer owns.

He also singled out online car dealer Vroom.

“That’s the name we think you could make multiple times your money in the next three or four years,” he told CNBC.

SPACs, shell companies seeking to merge with private companies with the intention of taking them public, have boomed. In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But by the fourth month of 2021 alone, 308 SPACs have raised $99.7 billion, comprising 65% of all IPOs.

Recently however, US regulators have said they will take a closer look at SPACs following the blistering pace of growth over the last year.

Paul Munter, the acting chief accountant at the Securities and Exchange Commission, in April cautioned SPAC investors about the risks and governance issues that come with raising capital through blank check companies.

In March, the SEC has begun an inquiry into the SPAC craze, seeking voluntary information from market participants.

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The SEC says it’s looking closely at the wild earnings projections attached to many SPAC offerings

FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst
FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door

The US Securities and Exchange Commission issued a warning to blank-check companies presenting projections that only give an optimistic outlook of future growth. The agency added that it will “look carefully” at SPAC filings and disclosures as well as those of their private targets.

John Coates, the agency’s acting director for the corporation finance division, said on Thursday that a company would be on “shaky ground” if it only disclosed favorable projections and omitted “equally reliable but unfavorable projections.”

Special purpose acquisition companies or SPACs have been booming, enabling many pre-revenue startups to go public. SPACs are essentially shell companies seeking to merge with private companies with the intention of taking them public. SPACs are often considered a cheaper, faster alternative to a traditional IPO.

SPAC sponsors have also generally been allowed to more freely give projections of future growth than is allowed for companies going public via traditional IPO, which are not allowed to broadcast future sales or earnings.

Coates pointed to the Private Securities Litigation Reform Act safe harbor, a legal liability SPACs often refer to when making optimistic forward-looking statements.

“This…is the reason that sponsors, targets, and others involved in a de-SPAC feel comfortable presenting projections and other valuation material of a kind that is not commonly found in conventional IPO prospectuses,” he said, referring to the safe harbor.

This, he said, raises significant investor protection questions, and is why he is calling on the agency to treat SPAC deals with the same level of scrutiny as IPOs.

“Any simple claim about reduced liability exposure for SPAC participants is overstated at best, and potentially seriously misleading at worst,” Coates said. “Indeed, in some ways, liability risks for those involved are higher, not lower, than in conventional IPOs, due in particular to the potential conflicts of interest in the SPAC structure.”

Coates added that while projections are woven into the fabric of business combinations, they have to be fair. Forward-looking information, he said, can be “untested, speculative, misleading or even fraudulent, as reflected in the limitations on the PSLRA’s liability protections.” He floated the possibility of having guidance about how projections and related valuations should be presented.

SPACs have attracted a number of high-profile investors including famed fund manager Bill Ackman and billionaire Chamath Palihapitiya. Celebrities have also joined the bandwagon, with icons such as baseball star Alex Rodriguez and tennis legend Serena Williams backing recent SPAC offerings.

Regulators have recently turned their eye to the soaring market. On March 11, acting SEC Chair Allison Herren Lee said that SPAC returns don’t warrant the “hype” they’re getting.

Last year, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But by the fourth month of 2021 alone, data already show 306 SPACs that raised $98.3 billion, comprising 79% of all public offerings.

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Bill Gates says companies have gone from staying private too long to going public too soon and that he’s avoiding ‘low quality’ SPACs

Bill Gates
  • Bill Gates believes some companies may be going public too soon amid a SPAC boom.
  • The billionaire said he will be sticking to “higher quality” SPACs in this environment.
  • Gates emphasized the need for “extreme” disclosures to protect investors from early-stage investing risks.
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Bill Gates said he believes companies have “flipped” from staying private too long to going public too soon, in an interview with CNBC on Friday.

The billionaire Microsoft co-founder added that he will be avoiding “low quality” special purpose acquisition companies (SPACs) that have flooded the market and sticking with “higher quality” options.

Gates sat down with CNBC’s Becky Quick and former US Treasury Secretary Hank Paulson to discuss his climate-related work for the economic club of New York on Friday. In the interview, the billionaire philanthropist was asked about the rise of SPACs and whether or not they would be a benefit to “green” startups.

SPACs have raised more money in the first quarter of 2021 than they did in all of 2020, raking in more than $97 billion in just three months, according to data from SPAC Research.

Gates emphasized the capital intensive nature of climate change solutions and green companies and said that if investors are willing to take the risk, cash from capital markets would allow “green product companies” to “improve their balance sheet and get capital for projects because the markets are saying this is important.”

On the other hand, Gates warned about the risks in early-stage investments, saying, “you’ve got to make sure your disclosure about the risks is really extreme.”

He also noted that “we’ve kind of flipped from a world where companies would probably stay private too long, to now where, unless you’re tasteful, some of these companies may be going public too soon.”

Gates added that “there will be quality companies that SPAC,” but emphasized there will also be “low-quality companies” that choose to take advantage of the SPAC boom. Gates said he will be looking to stay involved in the only higher-quality offerings.

After a meteoric rise in SPACs over the past two years, there’s been some evidence that the SPAC market is beginning to cool.

Specifically, SPAC IPO prices have begun to fall. In fact, some 93% of SPACs that went public in the last week of March traded below their $10 initial offering price, per Reuters.

SPAC ETFs are also taking a hit, the Defiance Next Gen SPAC Derived ETF (SPAK) has fallen 23% from February 17 record highs.

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US SEC official warns SPAC dealmakers of the risks and complexities tied to blank-check mergers

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A US markets watchdog official on Wednesday cautioned blank-check company dealmakers about the risks and governance issues that come with raising capital through special-purpose acquisition companies (SPACs).

Paul Munter, the acting chief accountant at the Securities and Exchange Commission, said timelines of such transactions are part of the challenges for private companies that merge with SPACs. That is because their development may still be in early stages.

“Many SPAC acquisition targets may be at an earlier stage in the entity’s development compared to companies that pursue a traditional IPO,” he said in a statement, adding target companies should have a plan to address the demands of becoming public on a speedy timeline.

Munter urged market participants to carefully consider risks, complexities, and challenges in the space, including the consideration of whether target companies are prepared to go public.

SPACs have raised $97 billion across 298 IPOs so far this year, exceeding the previous year’s record of $83 billion raised, according to data from SPACInsider.com.

But March was a rough month for companies in the space as firms and individual investors grew increasingly cautious over SPAC investing. 93% of SPACs that went public in the last few weeks of the month were trading below par value, or $10 per share. JPMorgan said SPAC acceleration may be hitting a peak and could slow for the rest of the year.

Munter made his statement about a week after the regulator wrote to Wall Street banks to seek voluntary information on their SPAC dealings.

“Given the explosion in popularity of SPACs, it’s no surprise that enforcement is asking questions – this is the beginning of what I expect will be heightened scrutiny of trading and disclosures to investors arising from the surge of these transactions,” Doug Davison, partner at law firm Linklaters, said.

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The red-hot SPAC market is cooling off as first-day trading spikes evaporate

SPACs and hedge funds 2x1

The red-hot SPAC market looks to be cooling off as first-day trading spikes that were common in the space earlier this year begin to evaporate.

93% of SPACs that went public over the last week are trading below par value or $10 per share, per Dealogic data compiled by Reuters, That’s 14 out of 15 SPACs this week alone trading below their IPO price.

The biggest first-day jump of a SPAC this month was just 3.5% for Supernova Partners Acquisition Co II Ltd on March 1.

That’s compared to January’s largest first-day pop of 32.5% for Altimeter Growth Corp II and February’s best first-day jump of 24.9% for CM Life Sciences II, per Reuters.

SPACs are “blank check” firms that go public with nothing but cash on their balance sheet. Their sole goal is to merge with or acquire a private company allowing that business to skip the traditional IPO process to make its public debut.

There’s no doubt the SPAC market is booming. SPACs have raised $87.9 billion so far in 2021, according to data from SPAC Research. That’s already more than all of 2020 when SPACs raised $82.1 billion, per Dealogic.

The incredible rise of SPACs means the blank check firms now have over $1 trillion in spending power.

Unfortunately, the rise in SPACs hasn’t always led to great returns for investors, especially retail investors.

According to data from “A Sober Look at SPACs” by Klausner, Ohlrogge, and Ruan 2020, average returns for SPACs 12 months after their merger were negative 34.9% between January 2019 and June 2020.

Billionaire investor Barry Sternlicht told CNBC on Wednesday he believes the SPAC market is “out of control.” These days “if you can walk, you can do a SPAC,” Sternlicht said.

The CEO and Chairman of Starwood Capital, which operates six SPACs of its own, warned about the lack of due diligence done by SPAC sponsors. Sternlicht also said the recent poor performance of SPACs is partly a result of a tech sell-off, because a lot of SPACs are tech-focused.

“People are also beginning to question the euphoria and retail investors are unable to keep up with all these names,” Sternlich told Reuters.

Sternlicht isn’t the only one questioning SPACs recent rise either.

UBS barred financial advisors from making SPAC pitches to clients due to limited availability of research on SPACs before their mergers with private companies. All of this bearish news may be weighing on SPACs’ first-day results.

Read more: Hedge funds are ramping up bets against Chamath Palihapitiya’s SPACs and have already taken home $40 million this year. Here’s a detailed look at the wagers they’re making.

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UBS has reportedly barred its advisors from pitching certain SPAC stocks to wealth management clients

SPACs and hedge funds 2x1
  • UBS is barring its financial advisors from pitching certain SPAC stocks to its clients, according to a report from CNN Business.
  • SPACs have boomed in popularity as companies pivoted away from the traditional IPO during the pandemic.
  • UBS made the decision because of the limited availability of research on SPACs before their mergers with private companies, according to CNN.
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The boom in SPACs over the past year is being met with caution by UBS and its financial advisors, according to a report from CNN Business.

UBS is restricting its North American financial advisors from pitching certain SPAC stocks to its wealth management clients because of a lack of information and research on the blank-check investment vehicles prior to their mergers with private companies, according to CNN.

Since the beginning of 2020, more than 500 SPACs, or special-purpose acquisition companies, have gone public, as the traditional initial-public-offering route became more difficult in a remote-work environment. Twenty-four SPACs went public in just the past week, and more SPACs have already debuted in 2021 than in all of 2020, according to data from Dealogic.

UBS is said to be allowing its advisors to trade SPAC stocks for clients only on an unsolicited basis, or when directed by the client. UBS advisors can pitch SPAC stocks to clients once they complete their merger with a private company, according to the report.

However, SPAC IPOs in which UBS is an underwriter of the deal can be pitched to clients by UBS’ team of financial advisors, according to the report. UBS served as the primary underwriter for 22 SPACs last year and was one of the lead underwriters for Bill Ackman’s $4 billion SPAC, Pershing Square Tontine Holdings.

With a sea of SPACs available to invest in, investors have little to go on besides the management team when deciding which to buy. And recent SPACs from sports celebrities such as Alex Rodriguez and Colin Kaepernick should offer no assurances to investors, according to a recent warning from the Securities and Exchange Commission.

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