NEW YORK: After a flurry of initial public offerings (IPOs) that raised US$11.7bil this year, a new crop of blank-cheque firms are joining a long queue: all the other vehicles waiting for the chance to take a company public.
The rush of IPOs marks the busiest start to a year since 2021’s boom, with a whopping 53 companies raising four times as much as in the same period last year, according to data from SPAC Research, which tracks the industry.
The 13 announced mergers since Jan 1 can’t keep up with the flow of deal-needy special purpose acquisition companies (SPACs) being created.
“Not having mergers is certainly a negative because that’s what ultimately drives the entire sector,” said Julian Klymochko, chief executive officer of Accelerate Financial Technologies.
“There’s no point in having a bunch of IPOs if you’re not going to see any material deal agreements announced.”
Some observers are optimistic that deals will come to fruition, as dozens of mostly experienced SPAC teams kick the tires on prospective mergers.
Still, although investors in SPAC IPOs can collect the risk-free interest associated with their exposure to US Treasuries while they wait, the lack of successful transactions ultimately threatens the business model itself.
The current crop of agreed SPAC mergers is drawing only lukewarm interest, with five of those 13 blank-cheque firms valued by the market at more than the cash they hold in trust, data from SPAC Research show.
Relative standouts that have struck deals to start the year are in hot sectors like quantum computing.
Real Asset Acquisition Corp is trading at a modest premium after a deal to take Finnish quantum computing company IQM Quantum Computers public.
While Spring Valley Acquisition Corp III saw a fleeting rally after announcing a tie-up with General Fusion Inc which is developing on nuclear fusion technology.
“It’s safe to say that we should start to see a tick up in announcements and closings over the next two or three or four quarters,” said Mark Schwartz, who leads IPO and SPAC advisory at consulting giant EY.
“That’s an easy thing for me to say because the merger activity has been pretty anaemic to date.”
The last flurry of deals that sparked optimism for sponsors, advisers and investors came during the summer, when digital asset treasuries – companies which exist to hold cryptocurrencies – became the latest fad.
SPACs backed by Cantor Fitzgerald and Cohen & Co fuelled a mini-frenzy, before the crypto market went ice cold and shares spiralled down.
Share prices for both companies have slumped more than 80% from their pre-merger SPAC peaks, data compiled by Bloomberg show.
Nearly two-thirds of the 400-plus ex-SPACs that are still traded after debuting in the past six years have crashed more than 80%, data from SPAC Research analysed by Bloomberg show.
That’s on top of the dozens that went bankrupt or were acquired at fire-sale prices shortly after debuting on public exchanges. — Bloomberg
