A global boom in so-called blank-cheque firms has faltered in the first quarter of 2022 as investors grow sceptical of the vehicles and regulators prepare to clampdown on fanciful financial forecasting.
Special purpose acquisition companies (spacs) scooped up record amounts of acquisitions in every quarter last year before peaking at 104 in the final three months, according to data from CBInsights, with big name firms like WeWork and SoFi swerving IPOs to opt for spac mergers.
The cash shell companies offer firms an alternative route to market via a merger, bypassing the traditional IPO process and slashing associated fees and timelines.
But the blizzard of deals has tapered off this year with just 66 fresh mergers completed in the first quarter. New issuances have similarly been tamed by market turbulence as just 78 new spacs floated on public markets, closing on $15bn in proceeds, the lowest quarter since the second quarter of 2020 at the cusp of the spac renaissance, according to data from investment analysis firm Pitchbook.
UK IPO lead at accountancy firm EY Scott McCubbin said increased scrutiny by regulators in the US and UK meant the spac surge over the past two years was unlikely to be repeated.
“The rules have changed and there’s been a move by the UK exchanges to make sure that they are aligned globally,” he said.
“There has been a boom and a bust almost in the US and that is not going to be repeated in the UK. So the expectation that Spacs are going to be the vehicle that transforms the UK market into something much bigger than it currently is, I just don’t believe that will be the case and nor do I want it to be.”
‘DeSpac-ed’ firms – those that have gone public via a merger – have also been hammered by recent routs on public markets sparked by soaring inflation and Russia’s invasion of Ukraine.
Pitchbook’s deSPAC Index, which tracks the post merger performance of firms, has posted a 35.6 per cent plunge since the beginning of 2022 relative to the S&P 500’s 10.6 per cent decline.
But despite the slide in performance McCubbin says that spacs will remain a fixture on the markets without the frenzied fervour seen in the US in 2021.
“Spacs are now there, spacs will happen, but they will be part of the portfolio of IPOs that comes into the market,” he tells City A.M.
“They are a part of the toolkit alongside debt, private equity money, sovereign wealth funds, by which a firm can be acquired.”
Some remain more bullish on the outlook for spacs and say the market and product have evolved with increased scrutiny.
“I think where we are sort of at a maturity point in the spac boom which is which is a great thing to see,” says David Koch head of equity markets at UK investment firm GP Bullhound, which snubbed London to float a spac on Euronext this year.
“We saw a flurry of issuance come out of what was a super investor friendly product developed in the US a few years ago, which created that sort of $100bn per annum of issuance and what made Europe scramble to replicate the product as quickly as possible.”
But Koch says now the rules are “catching up” up with the products and regulators are clamping down on some of the loopholes.
“It’s becomes much more of a mature product, and it’s good to see this in Europe, where it took a while for the market to kick off because it was lagging.”
GP Bullhound raised €200m when it floated GP Bullhound Acquisition on the Euronext exchange in February with the aim of snapping up a tech firm with a focus on software, digital media, digital commerce or fintech.