Blank check bust
If 2021 was the year of the SPAC, 2022 is the year of terminating the SPAC. This week alone saw $11 billion in SPAC deals called off within a single hour. That puts the total number terminated for 2022 at 54, twelve more than all SPACs terminated over the last five years.
For those needing a quick reminder, SPACs are special purpose acquisition companies — essentially a company with a big blank check that buys private companies. They offer a quicker route to public markets, skipping long roadshows, negotiations and some of the due diligence of a traditional IPO process.
When stock markets were near all-time highs, SPACs were an attractive option for private companies looking to go public — the total number of SPAC deals hit 613 last year. That euphoria is now long gone. So far this year, only 83 companies have gone public through a merger with a SPAC.
As investors become more cautious, traditional IPO processes — which often involve deep scrutiny of the company and its financials — are looking a safer bet. Indeed, recent research by Bedrock found that 49% of the quarterly financial filings by de-SPACs since 2020 contained an admission of ineffective internal controls, accounting speak for “this is a bit dicier than it should be”.
