- The surge in SPACs over the past year is putting pressure on sponsors to find and complete an acquisition as deadlines loom.
- There are about 260 SPAC companies with $87 billion on hand that face merger deadlines in the first three months of 2023, The Wall Street Journal reported.
- The increased competition among SPACs to complete a deal could lead to less-than-desirable mergers going forward.
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A surge in SPACs over the past year and looming deal deadlines has led to increased competition among sponsor companies to complete a merger, according to a report from The Wall Street Journal.
Since 2020, nearly 600 SPAC companies have raised close to $200 billion, according to data from SPACInsider. But those SPACs typically have a two-year deadline to complete a merger before having to return the money raised to its shareholders.
There are now about 260 SPAC companies sitting on $87 billion in cash that face merger deadlines in the first three months of 2023, the Wall Street Journal reported, citing data from Methuselah Advisors. While deadlines can be extended, it puts added pressure for SPACs to get a deal done.
In the event a SPAC is forced to liquidate, the sponsor will lose money on the upfront fees paid to register and debut the SPAC, which often amounts to several million dollars, according to the report.
The flood of new SPACs is making it harder for deals to get done, as private companies are often fielding multiple calls per week from SPAC sponsors in search of an acquisition, which is known by some on Wall Street as a "SPAC-off." One such company reportedly talking with as many as 12 SPACs to go public is luxury gym owner Equinox.
"You're going to see a fair number of less-than-desirable deals done just because they have to get done," Methuselah's John Chachas told The Wall Street Journal.
SPAC sponsors often receive deeply discounted shares when a deal is completed, which incentivizes them to get a deal done at any cost, regardless of the quality of the company that may be brought public.
At the same time, private companies could see favorable deal terms if they hold out on going public via a SPAC merger until next year, when sponsors feel the added pressure with a deal deadline looming.
The realization that a flood of SPACs are frantically searching for a deal can be seen in the stock prices of the blank-check companies. While most SPACs traded above their $10 pricing level last year, many now trade below that level.
Only two of the 23 SPACs that announced a deal in May were trading above their IPO price by the end of the month, according to the report.
But the current weak showing in the SPAC space could change if momentum returns to the stock market and investor interest in the space is renewed.
"Three months from now, the market could look very different. It could be game on again," SPACInsider founder Kristi Marvin told The Wall Street Journal.