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- The blank-check frenzy may be losing steam, according to a note from Goldman Sachs.
- The firm noted that most SPACs have underperformed the market as interest rates have climbed.
- Also, high growth, long duration stocks that are considered a proxy for SPAC sentiment have underperformed.
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After the market was hit with an earth-shattering number of SPAC issuance in the first quarter of 2021, the blank-check frenzy may be starting to lose steam.
As interest rates climb, most SPACs have underperformed the market, along with other high growth, long duration stocks, according to Goldman Sach's David Kostin.
"Announced or completed de-SPAC acquisitions tend to be early-stage businesses with high growth, meaning they tend to have long duration cash flow profiles. Active SPACs have even longer duration because they have not yet purchased a business," said the chief US equity strategist in a recent note.
Here are three statistics compiled by Kostin's team that show just how much investor appetite for SPACs has declined.
- The Defiance Next Gen SPAC Derived ETF, which consists of more than 200 US-listed SPACs and de-SPACs, has underperformed the S&P 500 by 27 percentage points year-to-date. (-17% vs. +10%).
- Goldman Sach's basket of short duration stocks has returned +17% YTD, while long duration stocks have returned 0%.
- Non-Profitable Tech Stocks have plunged by 26% in the last two months and have returned -8% YTD. Non profitable technology stocks are a proxy for SPAC sentiment, as they are popular acquisition targets for the blank check firms.
Additionally, SPAC issuance has slowed dramatically in the second quarter of 2021 as only siex new SPAC IPOs have come to market so far. At this point in the first quarter, 55 SPAC IPOs had been completed.
Kostin's team said that a key driver of the slowdown in SPAC issuance is heightened regulatory scrutiny. The SEC has recently released two statements expressing concerns over the reporting, accounting, and governance of special-purpose-acquisition companies.
However in spite of this, the strategists said that SPACs could drive a total of $900 billion in M&A enterprise value in the next two years. Goldman Sachs estimates that nearly $129 billion of SPAC capital is currently searching for a target.