- 25 companies that merged with a SPAC have warned they could go bust within a year, according to a data analysis firm.
- These companies listed by merging with a blank-check company rather than through a traditional IPO.
- SPACs boomed in the first half of 2021, but the market has struggled since.
25 companies that listed during the SPAC boom of 2020 and 2021 have already issued warnings that they could go bust within a year, according to a data analytics firm.
Audit Analytics found that 10.8% of the 232 stocks that merged with blank-check companies over the past two years have issued going-concern warnings, which indicate a company will struggle to stay afloat over the next 12 months.
A SPAC, or special purpose acquisition company, raises money through an IPO and then aims to acquire or merge with another company. Chamath Palihapitya is one high-profile sponsor, while companies including Lucid Motors and Virgin Galactic have merged with SPACs to list on public markets.
These blank-check vehicles raised $96 billion in the first quarter of 2021 alone, according to the Harvard Business Review.
But the market has struggled since that boom. Morgan Creek's Exos SPAC Originated ETF, which tracks these vehicles, is down 44% over the past year.
21 of the 25 vulnerable companies had revenue less than $100 million in 2021, according to Audit Analytics. Just under 6% of all the stocks listed on the New York Stock Exchange and Nasdaq issued going-concern warnings last year, the firm's director of research Derryck Coleman told Insider.
SPACs tend to merge with high-growth tech companies that are keen to avoid the traditional IPO process. These sorts of stocks have struggled this year as investors weigh up rising interest rates and recession risks, with the tech-heavy Nasdaq 100 down over 20% year-to-date.
"The cycle turned and investors rotated to different sectors," Julian Klymochko, who runs a SPAC arbitrage fund, told Insider. "The bloom is off the rose for many unprofitable small-cap hyper-growth companies that recently went public… they need to batten down the hatches to live to fight another day."
An air-taxi manufacturer, several electric carmakers and a scooter rental company are among the post-SPAC merger stocks that issued going-concern warnings, according to the Wall Street Journal.
"These companies are in trouble now as they are not self-funding and early-stage start-ups have by and large lost access to capital," Klymochko said. "If investors no longer want to fund these cash-burning businesses, then unfortunately they need to consider strategic alternatives."