Special Purpose Acquisition Companies Fall Out of Favor with Investors
After a wave of special purpose acquisition companies, known as Spacs, the tide seems to be turning, with some of the most prominent examples now under pressure
Spacs – or blank check funds – are shell companies that raise funds through initial public offerings before going public. Then they look for an acquisition, usually a private company. Once a deal is finalized, Spac takes its target audience by absorbing it and its investors take a share of the new company. If no transaction is concluded, the fund is liquidated and investors are reimbursed.
Two months ago, shares of Sir Richard Branson’s VG Acquisition Corp climbed to $ 17.65 when it announced its merger with 23andme, a genetic testing company. It has since fallen 42% to $ 10.20.
Shares of Churchill Capital Corp IV have halved since its merger with Lucid Motors, an electric car maker, was announced on February 22. In the weeks since FinTech Acquisition Corp confirmed its deal with eToro, the trading platform, its shares fell by more than a quarter.
The president of a Spac described the market as “overcrowded”, lamenting the role of the “jam-type companies of tomorrow” in the glut. “I thought last year was the top,” he says. “Now, within a few months, he has been beaten.”
There are 553 active Spacs, according to Spac Research. Of these, 120 have announced mergers and 433 are still on the hunt.