Shares in special purpose acquisition companies are sliding following takeover announcements, a marked reversal of the enthusiasm for these vehicles earlier this year which could threaten their ability to do deals.
Of the 13 Spacs that have announced acquisitions in May, only one is trading above $10, the level at which shares in blank-cheque companies are originally priced, according to a Financial Times analysis of Refinitiv data.
As recently as March, about nine out of 10 traded above $10 in the wake of a deal announcement, according to Spac Research — and many significantly above.
Market experts have attributed the about turn to a withdrawal from the market by institutional investors and a lack of interest from retail traders, who have turned their attention to other speculative assets such as cryptocurrencies.
“The retail component of the deals has been a big issue,” said Ari Edelman, a partner at Reed Smith. “A lot of the activity around Spacs in terms of how the stocks have been trading and the success of the Spacs was very much hinged on retail.”
The Spac boom has largely been underpinned by hedge funds who buy into the structure early and use leverage to juice up returns. But the vast majority of them sell out once a deal has been announced and are replaced by new investors eager to get a slice of the newly listed company. That appears to no longer be the case.
“The retreat of retail investors has been particularly bad,” said a big Spac sponsor. “Retail drove gigantic speculation from September until the bubble burst [in April] and now the Spac market is dead, dead, dead.”
Just a few weeks ago, Spacs were almost guaranteed a “pop” in the share price once the company announced its merger target. Sometimes even rumours of a deal, as with Michael Klein’s Churchill Capital IV and Lucid Motors, sent shares in the blank-cheque company up 80 or 90 per cent.
Now even large transactions by household names are failing to attract investors.
Soaring Eagle Acquisition, a Spac set up by serial sponsor and former Hollywood executive Harry Sloan, is trading below $10 despite announcing last week a $17.5bn deal to take Bill Gates-backed Ginkgo Bioworks public. Similarly, shares in Aurora Acquisition have declined by 10 per cent since it announced a $6.9bn deal with the SoftBank-backed mortgage lender, Better.
If the trend continues, Spacs may be forced to reprice their deals in order to win shareholder approval. Investors get back about $10 in cash if they decide against the deal and redeem their shares, which is why the $10 threshold is significant.
Aeye, which makes lidar sensors used for autonomous driving, repriced its deal with a Spac sponsored by Cantor Fitzgerald this month, agreeing to a 20 per cent reduction on the $1.9bn valuation it announced in February. The company cited trading in public lidar companies and “changing conditions in the automotive lidar industry” for the difference.
Additional reporting by Madison Darbyshire