The competition for SPAC mergers is intensifying, with 260 blank-check firms facing deadlines in the next 18 months, report says

NYSE trader

A surge in SPACs over the past year and looming deal deadlines has led to increased competition among sponsor companies to complete a merger, according to a report from The Wall Street Journal.

Since 2020, nearly 600 SPAC companies have raised close to $200 billion, according to data from SPACInsider. But those SPACs typically have a two-year deadline to complete a merger before having to return the money raised to its shareholders.

There are now about 260 SPAC companies sitting on $87 billion in cash that face merger deadlines in the first three months of 2023, the Wall Street Journal reported, citing data from Methuselah Advisors. While deadlines can be extended, it puts added pressure for SPACs to get a deal done.

In the event a SPAC is forced to liquidate, the sponsor will lose money on the upfront fees paid to register and debut the SPAC, which often amounts to several million dollars, according to the report.

The flood of new SPACs is making it harder for deals to get done, as private companies are often fielding multiple calls per week from SPAC sponsors in search of an acquisition, which is known by some on Wall Street as a “SPAC-off.” One such company reportedly talking with as many as 12 SPACs to go public is luxury gym owner Equinox.

“You’re going to see a fair number of less-than-desirable deals done just because they have to get done,” Methuselah’s John Chachas told The Wall Street Journal.

SPAC sponsors often receive deeply discounted shares when a deal is completed, which incentivizes them to get a deal done at any cost, regardless of the quality of the company that may be brought public.

At the same time, private companies could see favorable deal terms if they hold out on going public via a SPAC merger until next year, when sponsors feel the added pressure with a deal deadline looming.

The realization that a flood of SPACs are frantically searching for a deal can be seen in the stock prices of the blank-check companies. While most SPACs traded above their $10 pricing level last year, many now trade below that level.

Only two of the 23 SPACs that announced a deal in May were trading above their IPO price by the end of the month, according to the report.

But the current weak showing in the SPAC space could change if momentum returns to the stock market and investor interest in the space is renewed.

“Three months from now, the market could look very different. It could be game on again,” SPACInsider founder Kristi Marvin told The Wall Street Journal.

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The Archegos fiasco has reportedly made life harder for hedge funds investing in SPACs

Bill Hwang

A slowdown in SPAC IPOs since March could in part stem from the $20 billion unraveling of Archegos Capital, according to a report from the Financial Times’ Ortenca Aliaj and Joshua Franklin.

Bill Hwang’s Archegos utilized extreme leverage from a number of banks to build ahighly concentrated stock portfolio that ultimately moved against the firm as it was unable to meet margin calls. That leverage unwind caused $10 billion in combined bank losses, with Credit Suisse and Nomura losing the most.

Following the late-March leverage unwind, banks are exhibiting more caution when extending leverage to hedge funds and family offices, according to the report. Less leverage has forced hedge funds to rethink their strategy when investing in SPACs, according to the report.

Hedge funds would often employ leverage to buy SPACs at the $10 offering price, and then immediately sell any pops to get out early and lock-in gains. That leverage would significantly help juice returns for hedge funds.

A senior banker who works on SPAC deals told the Financial Times, “A lot of the return profile for hedge funds is derived from the leverage they employ. It was a gravy train when it was levered.”

Now, less leverage being offered to hedge funds in the wake of the Archegos fiasco has coincided with a significant drop in SPAC IPO listings. Over the past month, just 13 SPACs listed, compared to 110 SPAC listings in March.

“We are seeing it in the price action where securities are trading below par because banks are not offering leverage as freely as they did and it’s now more expensive,” Matthew Simpson of Wealthspring Capital told the Financial Times.

An analysis of Refinitiv data by the Financial Times found that 80% of SPACs that are still in search of a deal are now trading below the $10 level, which is often the IPO price for the blank-check firms.

“All the rocket fuel has come out of these things. If hedge funds were allowed to lever up, hedge funds would be levering up to buy all the SPACs trading under $10,” Matthew Tuttle of Tuttle Capital Management told the Financial Times.

But the unwind of leverage being offered to hedge funds isn’t the only reason why few SPACs have gone public in recent months. Increased regulatory scrutiny of SPACs and an unwind in the high-growth tech trade have certainly contributed to a decline in SPAC offerings.

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Move over, Robinhood: Acorns, an investing app used by nearly 7 million people, is going public amid SPAC boom

Acorns app
Acorns app.

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Acorns, the investing app Ashton Kutcher is obsessed with, announced plans to go public via SPAC yesterday in a deal valued at $2+ billion.

If Robinhood is your cool cousin who made $50k on her GameStop stock, Acorns is your quiet uncle who owns a profitable pet food business in the suburbs. Acorns doesn’t allow its 6.8+ million users to buy or sell individual stocks. Instead, it helps them build balanced portfolios for the long term via its signature service, which deposits users’ spare change into index funds.

  • “Acorns will be on the right side of history,” CEO Noah Kerner told the WSJ. “We are not a grow-at-all-costs company.”

Zoom out on SPACs: So far in 2021, SPACs have raised $17 billion more than 2020’s total haul. But even the biggest name in SPACs, Chamath Palihapitiya, wants more oversight of the process.

He might not have to wait long. SEC Chairman Gary Gensler said yesterday that the agency is beefing up resources to look into the SPAC boom, which many fintechs like Acorns have taken advantage of.

This story is from today’s edition of Morning Brew, a daily email publication. Sign up here to get it!

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Luxury gym chain Equinox is in talks to go public via merger with Chamath Palihapitiya-backed SPAC

Equinox fitness gym
  • Equinox Holdings is in talks to go public via a SPAC merger with Chamath Palihapitiya’s Social Capital Hedosophia, according to a Bloomberg report.
  • A potential transaction could value Equinox at more than $7.5 billion, the report said.
  • The luxury gym operator also owns SoulCycle, BlinkFitness, and opened its first hotel in 2019.
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Equinox Holdings is in talks to go public via a merger with one of Chamath Palihapitiya’s SPACs, according to a Bloomberg report.

The luxury gym owner could be valued at more than $7.5 billion if it goes public with Palihapitiya’s Social Capital Hedosophia Holdings Corp. VI SPAC vehicle, a person familiar with the matter told Bloomberg.

Talks of Equinox going public heated up in March following a report from Sportico, which said the company was in discussions with as many as 12 different SPACs to complete the public debut.

Besides its luxury gyms under the same name, Equinox owns SoulCycle, BlinkFitness, and opened its first New York City-based hotel in 2019.

The company was hit hard amid the pandemic as it was forced to close many of its locations. Equinox lost about $350 million on $650 million in revenue last year, according to Bloomberg.

An Equinox merger with Social Capital would likely be viewed as a win for the gym operator, as Palihapitiya has been one of the most prolific investors to bring companies public via a SPAC merger.

Some companies brought public by Palihapitiya include Virgin Galactic, which arguably kicked off the SPAC boom in late 2019, as well as Opendoor Technologies, SoFi, and Clover Health.

But the Bloomberg report didn’t drive the same surge in Social Capital Hedosophia Holdings Corp. VI on Wednesday that it might have a few months ago when SPACs were all the rage on Wall Street. The SPAC vehicle was down 2% in Wednesday trades, signalling that investors might not be impressed with the potential deal.

The SPAC market has deflated following a peak in the first quarter of 2021. Few issuances have gone public since April, when the SEC signaled that it would increase regulatory scrutiny on the IPO vehicles, and SPAC stocks have cratered, with the Defiance Next Gen SPAC ETF down nearly 30% since its February peak.

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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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There were no new SPAC debuts last week for the first time since March 2020, as signs point to the end of the blank-check craze

Stock Market Bubble
A trader at the New York Stock Exchange.

  • The air may be coming out of the SPAC market, with last week marking the first week of 0 new debuts since March 2020, said Bespoke Investment Group.
  • The firm said 20 holdings in the SPAK ETF have lost roughly 50% or more since mid-February.
  • 308 SPACs have raised $99.7 billion so far this year, according to SPAC Analytics.
  • See more stories on Insider’s business page.

The boom in SPACs, or blank-check firms that merge with private companies to take them public, has collapsed with new issuances drying up, according to market research from Bespoke Investment Group.

There has been no issuance so far this week and none last week, marking the longest SPAC drought since last March.

SPACs have surged in popularity, in part as they allow private companies to bypass the traditional IPO process, which can be slower and more expensive, in favor of a quicker route to public markets. The method of going public has been popular with many pre-revenue startups.

Bespoke said since February, $23.4 billion in SPAC issuance has been priced, which is roughly the same as the volume for the last two weeks of February, and a “small fraction” of the $135 billion in the second half of last year through the end of February.

“Given the collapse in performance since late February, it’s no surprise the register has stopped ringing,” said Bespoke in a note published Tuesday.

The firm noted that 20 stocks in the Defiance Next Gen SPAC Derived ETF that broadly tracks the SPAC space have lost about 50% or more since mid-February. Many of these are electric-vehicle and clean-energy names.

“Collectively, these stocks have seen their market cap fall from over $135 billion down to just $55 billion,” said Bespoke.

Among the biggest decliners, shares of XL Fleet, a company that converts commercial vehicles like small trucks into electric vehicles, and Diginex, a Hong Kong-based digital financial services company, have each fallen by about 67%, while Lordstown Motors shares pulled back by 64%.

So far in 2021, 308 SPACs have raised $99.7 billion, comprising 76% of all IPOs, according to SPAC Analytics. In 2020, 248 SPACs raised $83.4 billion.

In a SPAC Analytics list of top-performing SPACS, Primoris, a construction and engineering services provider, has logged a return of 672%, and sports-betting company DraftKings has posted a return of 604%.

A number of high-profile investors such as billionaire Chamath Palihapitiya and hedge fund manager Bill Ackman have been active in the space, and SPACs have lured famous non-Wall Street figures including ex-baseball player Alex Rodriguez, tennis star Serena Williams, and ex-House Speaker Paul Ryan.

The Securities and Exchange Commission has reportedly launched an inquiry into the SPAC craze and a top regulator with the SEC recently warned about the jump in fundraising SPACs, according to a report by The Wall Street Journal.

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

GettyImages 1230842275

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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Electric air-taxi startup Lilium set to merge with former GM executive’s SPAC in $3.3 billion deal

Lilium J013 air taxi flying over islands
  • Electric air-taxi startup Lilium is set to go public via a SPAC merger in a deal worth $3.3 billion.
  • Lilium will merge with Qell Acquisition Corp., which is led by a former executive of General Motors.
  • The 7-seater jet under development at Lilium can take off and land vertically and has a planned commercial launch of 2024.
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The SPAC craze continued on Tuesday as electric air-taxi startup Lilium said it would merge with Qell Acquisition Corp. in a deal worth $3.3 billion in pro forma equity value of the combined companies.

Lilium is a German-based firm that is developing electric air-taxis that can vertically take-off and land. The firm is currently building a 7-seater jet that it expects to launch commercial operations for in 2024. According to Lilium, the electric taxi-jet has a projected cruise speed of 175 mph at 10,000 feet, and has a range of 155 miles.

Former General Motors executive Barry Engle will join the board of the combined company, as will former Airbus CEO Tom Enders.

“I have spent my career in mobility and been part of the electrification of the automotive industry. The market and societal potential from the electrification of air travel is enormous,” Qell said.

The SPAC merger will raise total gross proceeds of $830 million for Lilium, and investors include Baillie Gifford, BlackRock, Tencent, and Palantir. Lilium will use the proceeds to fund the launch of commercial operations, including finalizing production facilities in Germany and obtaining type certification of the aircraft.

Qell Acquisition Corp. traded up 3% on the merger news to just above its $10.00 offering price.

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The SPAC boom is losing steam. Here are 3 signs the high-flying market is coming back down to earth.

SPAC popularity in real esate tech world 2x1
  • SPACs have raised more money in the first three months of 2021 than all of 2020, but the market may be losing steam.
  • The recent performance of blank-check companies has disappointed in the last month.
  • Also, firms and individual investors are increasingly growing cautious about the risks of SPAC investing.
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SPACs have raised more money so far in 2021 than all of 2020, but there’s some signs that the market is losing steam.

Here are three recent trends that show that the high-flying SPAC market may be coming back down to earth.

(1) SPAC IPO prices are fizzling

It’s been a rough month for blank-check companies that have gone public. According to Dealogic data compiled by Reuters, 93% of SPACs that went public over the last week are trading below par value or $10 per share.

Additionally, the biggest first-day gain of a SPAC IPO this month was a mere 3.5% for Supernova Partners Acquisition Co II Ltd on March 1. That pales in comparison to to January’s 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.

SPCX-an exchange traded fund that generally holds shares of SPACs looking for target companies to acquire-is down 6% over the last month. However, it has still returned 10% year-to-date.

On March 8, JPMorgan said in a note that the recent acceleration of SPACs suggested a peak for the sector rather than the middle of a boom cycle. They cited recent drawdowns in SPAC performance relative to the benchmark S&P 500 index to back up their view.

SPACs graph

The strategists didn’t detail when the peak would end, but said it’s reasonable to assume that the monthly pace of SPAC transactions for the remainder of 2021 will slow.

(2) Companies that have gone public via a SPAC are also taking a hit

The SPXZ exchange-traded fund holds roughly two-thirds of SPACS that have chosen to take a company public and one third blank-check entities seeking start-ups. It’s slumped 12% over the last month and lost 21% year-to-date.

In addition, the Defiance Next Gen SPAC Derived ETF (SPAK), an index-tracking fund that holds about 40% SPACs and 60% post-deal companies, is down 11.7% in the last month and down 8% year-to-date.

(3) Cooling investor sentiment

There’s also signs that investors are growing increasingly cautious on the rise in SPACs. David Trainer, CEO of investment research firm New Constructs, told Insider that investors are beginning to see through the fragile economic foundations of certain SPACs and “deservedly cutting valuations.”

On Wednesday, Billionaire investor Barry Sternlicht told CNBC on Wednesday the SPAC market is “out of control,” while last month Berkshire Hathaway vice-chairman Charlie Munger said the SPAC craze “must end badly,” but he isn’t sure when it will happen.

Much of the criticism of SPACs stems from the fact that they don’t face as much regulatory scrutiny as a traditional IPO before going public.

UBS is barring its financial advisors from pitching certain SPAC stocks to its clients because of a lack of information and research on the blank-check investment vehicles prior to their mergers with private companies.

JPMorgan says that SPACs have been used for decades but appear to progress through boom and bust cycles.

The boom is typically driven by momentum, then imitation from sponsors, investors and target companies looking to take advantage of strong demand. Meanwhile, the bust occurs when too many poor quality players emerge, investor excitement fizzles and regulatory concerts arise, the firm said in a note.

Still, some see the recent pullback in SPACs as a temporary dip, and even a buying opportunity for investors who missed the beginning of the SPAC market’s bull run.

Sylvia Jablonski, Defiance ETFs chief investment officer, told Insider that recent fluctuations in the 10-year Treasury yield may have impacted investor interest in growth companies, the kinds of companies SPACs typically target.

“In my mind, this is a perfect opportunity for buying on a dip as the long term prospects for the world’s most innovative, disruptive and new emerging technologies will likely reward investors over time,” Jablonski said.

David Trainer said it’s unclear if the SPAC mania is truly over. He said given the wild ride GameStop has been on of late, “there appears to be no end to the gullibility of a large number of investors.”

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SoulCycle owner Equinox Holdings is mulling a SPAC to go public, new report says

SoulCycle LA
Before the fall: A typically exuberant SoulCycle class swings their sweat towels in March of 2019 in Los Angeles.


SoulCycle majority owner Equinox Holdings is mulling a public offering via a merger with a SPAC, according to a report from Sportico.

The luxury gym and fitness brand is said to be meeting with as many as 12 blank-check firms that are in search of a company to acquire as a flood of SPACs hit the market, according to the report. The company has also met with private equity investors to explore its alternatives.

If a deal does materialize, Equinox could fetch a valuation of $9 billion or more as investors search for reopening plays that are poised to benefit from a reopening of the economy and a diminished threat from COVID-19.

“Everyone’s just trying to figure out what to do. There’s a recovery play to be had, which everyone is evaluating,” said a private equity investor that held talks with Equinox, according to Sportico.

Equinox operates more than 100 full-service fitness clubs, a luxury hotel in New York City, a discount gym named Blink, and a majority stake in SoulCycle, which recently launched its own at-home exercise bike to compete with Peloton.

Over the past year, more than 500 SPACs have been formed and are in search of a deal before the 2-year expiration forces a liquidation of the investment vehicle. According to Dealogic, currently-listed SPACs have more than $1 trillion in purchasing power.

The names of the SPACs that are in talks with Equinox were not disclosed, according to Sportico, which highlighted that there are at least 24 sports-related SPACs that could justify a deal with Equinox.

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