Indeed, in recent quarters, the number of SPAC IPOs and mergers has reverted to preboom levels. The prospect of tighter regulations contributed to a sharp decrease in the number of new SPAC IPOs and diminished the market’s enthusiasm for SPAC mergers. The proposed changes would eliminate some of the advantages of going public via a SPAC versus a traditional IPO. In March 2022, the SEC proposed additional rules covering disclosures by sponsors, liabilities of financial advisors and underwriters, disclosures related to the fairness of transactions, and the use of projections, among other topics. As the frenzy was peaking in 2021, the US Securities and Exchange Commission proposed stricter rules covering forward-looking statements and accounting and disclosure. These transactions provided SPAC sponsors and investors with enormous returns.īut the SPAC boom led to greater regulatory scrutiny. SPACs used the proceeds to merge with high-profile startups, including DraftKings, Grab, Lucid, Polestar, and WeWork. For all of 2021, SPAC IPO proceeds accounted for 39% of the global IPO market. The proceeds from SPAC IPOs in the first quarter of 2021 exceeded those in the entirety of 2020. SPACs raised record proceeds via their public offerings, while major players with diverse backgrounds got into the game as sponsors and investors. Then, equity markets’ recovery from the initial shock of the COVID-19 pandemic triggered a frenzy of SPAC activity from mid-2020 through the first quarter of 2021. That started to change in 2017, when the number of SPAC IPOs and mergers began trending upward. A SPAC that fails to meet the merger deadline must give its investors their money back, plus interest.įor many years, SPACs were considered a niche investment vehicle in capital markets. Extensions of this deadline are possible if negotiations with a target are underway. SPACs enter the market via an IPO (a “SPAC IPO”) and usually have a two-year window within which to complete a reverse merger with a target (a “SPAC merger” or “de-SPAC transaction”). They should then conduct an in-depth analysis to evaluate individual SPAC suitors and prepare to negotiate from a position of strength. To navigate their discussions with SPACs, targets first need to understand how these vehicles work. ![]() With so many SPACs under pressure to hook up, potential targets have an opportunity to strike favorable deals that overcome the pitfalls of such mergers. At the end of 2022, approximately 350 SPACs (with $96 billion in raised proceeds) faced a 2023 deadline to acquire a target-and most of them must make a deal during the first quarter. ![]() However, many SPACs launched during the boom are still looking for targets to merge with. The frenzy fizzled out because of intensified regulatory scrutiny and changing market dynamics. SPACs experienced a phenomenal rise and fall in 2020 and early 2021. In some cases, using a SPAC to go public is a viable alternative to a traditional IPO or a direct listing. SPACs are listed shell companies that exist solely to merge with private companies and thereby take them public.
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