SPACs have raised a record $100 billion in 2021, but activity levels have plummeted by more than 80% in recent months

DannyMeyer 02 GettyImages 624401698
Danny Meyer, founder of Shake Shack, is the chairman of a new SPAC.

  • Data from Refinitiv shows that global SPAC IPOs have raised a record $100 billion in 2021 so far.
  • Despite the record amount of proceeds, the volume of SPAC listings has plummeted.
  • The Refinitiv data is another sign the blank-check frenzy driven by the Fed’s easy-money policies is drying up.
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The amount of money raised by SPACs around the world has reached a record high, but the blank-check frenzy is showing signs of slowing.

As of May 19, global IPO SPAC proceeds have reached a record high of $100 billion, 23% more than the level recorded throughout all of 2020, new data from Refinitiv shows.

But despite reaching this milestone, the number of special purpose acquisition companies going public has plummeted in recent months. In March, a total of 116 special purpose acquisition companies listed. In April, the number of listings dropped to just 18.

SPAC activity ballooned in 2020 and the beginning of 2021 as the Federal Reserve’s easy-money policies pumped liquidity into the market. Investors were hungry to deploy their cash, and SPACs were just one of their targets.

Now, concerns of overheating inflation out of the pandemic has investors worried the Fed may taper its asset purchases sooner than expected and dry up the market. Minutes from the Fed’s April meeting published Wednesday showed that some officials signaled they would be open “at some point” to begin discussing a plan for adjusting the pace of asset purchases.

Another key driver in the SPAC slowdown is heightened regulatory scrutiny, according to Goldman Sach’s David Kostin. In an April note the chief US equity strategist highlighted that the SEC has recently released two statements expressing concerns over the reporting, accounting, and governance of special-purpose-acquisition companies.

And although proceeds have reached a record high, the performance of blank-check companies and companies that have recently gone public via them is declining.

The Defiance Next Gen SPAC Derived ETF (SPAK), which consists of more than 200 US-listed SPACs and de-SPACs, has underperformed the S&P 500 year-to-date. The SPAC ETF is down 16.33% in 2021, while the benchmark index has gained 9.8%.

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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.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

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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