The SPAC Market: Is It Ready for a Comeback?

The SPAC Market: Is It Ready for a Comeback?

The stock market has been on a tear this year, fueled by a surge in technology and speculative stocks. This rally is driven by a combination of factors, including rapid advances in artificial intelligence and the expectation of lower interest rates. Investors are betting that the Federal Reserve will aggressively cut interest rates, which would make riskier investments more attractive.

This situation echoes the bull market of 2020, when central banks flooded the market with liquidity in response to the COVID-19 pandemic. However, one key difference between then and now is the activity in Special Purpose Acquisition Companies (SPACs).

A Brief History of SPACs

SPACs are shell companies that raise money through an initial public offering (IPO) to acquire a private company. They were incredibly popular in 2020 and 2021, as the low interest rates made them a lucrative investment.

In 2019, SPAC IPO issuance totaled $12.1 billion. This skyrocketed to $82 billion in 2020 and a staggering $163 billion in 2021.

The SPAC Freeze

However, the SPAC boom abruptly ended. New issuance plunged by 98.3% compared to 2021, with only $2.7 billion raised across 28 SPACs in 2023. This marks the lowest level of blank check IPOs since 2014.

The current SPAC market stands at $19.1 billion, a 22% decrease from its size at the beginning of 2020. Over the next year, $14.8 billion, or nearly 80% of the existing SPAC market, is scheduled to mature. This creates a potential deficit of SPAC vehicles.

Signs of a Resurgence?

While the SPAC market remains subdued, there are signs of a possible resurgence. November saw the issuance of four new SPACs, raising approximately $645 million. Two of these were larger offerings, both from experienced sponsors.

Further indicating a potential turnaround, some SPACs are being acquired at premiums to their initial public offering price of $10.00. Recent examples include:

• Blackstone's buyout of Rover Group (formerly Nebula Caravel Acquisition) for $11.00 cash per share
• Crescent Point's acquisition of Hammerhead Energy (formerly Decarbonization Plus Acquisition IV) for approximately $15.00 in cash and shares
• Eli Lilly's tender offer for POINT Biopharma (formerly Therapeutics Acquisition) at $12.50 cash

The Future of SPACs

With the stock market roaring ahead, could the SPAC market be thawing out after its deep freeze? The recent signs of activity suggest a potential comeback, but it remains to be seen whether this momentum will continue.

To effectively analyze the SPAC landscape, investors can utilize resources like Accelerate AlphaRank SPAC Monitor. This platform provides comprehensive metrics on the current SPAC market, including details on each individual SPAC and the average arbitrage yield offered.

Disclaimer

This research is intended for informational purposes only and does not constitute investment, legal, or tax advice. The information provided should not be considered a recommendation or solicitation to buy or sell any securities or investment strategies. The content is based on current market conditions and may change in the future.

Accelerate Financial Technologies Inc. ("Accelerate") makes no representations or warranties regarding the accuracy or completeness of the information contained herein. Accelerate disclaims any liability for any losses arising from reliance on this research. Accelerate may hold positions in securities mentioned. Past performance is not indicative of future results.

In Conclusion:

The SPAC market experienced a boom followed by a sharp decline. While it remains subdued, recent activity suggests a potential resurgence. However, the future of SPACs is uncertain, and investors should proceed with caution.