Market Spotlight: After a roaring 2020, is the boom time over for SPACs?

By Mark Williams, Chief Revenue Officer, Americas

Though they have existed for decades now, special purpose acquisition companies (SPACs), also called blank check companies, became an essential component of the financial zeitgeist in 2020, as dealmakers around the world looked for ways to contend with the fallout from the COVID-19 pandemic.

Having come to the fore last year, SPACs – which provide sellers with a more rapid path towards an exit than an initial public offering (IPO), and carry less heavy regulatory burdens – carried forward that momentum into the early phases of 2021.

At the time of writing, there have been 378 SPAC IPOs in the US this year with total proceeds exceeding US$114bn, already surpassing the US$83bn raised in all of 2020 from the then-record-breaking 248 SPAC IPOs, according to SPAC Analytics.

But some of the luster seems to be wearing off, evidenced by the quarter-on-quarter decrease in the number of new SPAC issues, from more than 300 in Q1 to less than one-third of that in Q2. Regulators in the US, the uncontested capital of this activity, are directing much more attention towards SPACs and querying everything from overly-optimistic financial projections to subpar due diligence.

In the US, these inquiries are personified by Wall Street veteran Gary Gensler, the chair of the Securities and Exchange Commission (SEC) who President Joe Biden appointed to the role in April. Citing the potentially unequitable risks carried by retail investors, Gensler in June described SPACs as “very expensive, dilutive products”, and remarked that it was important that “retail investors get the right disclosures and are protected.”

How exactly changes to SPAC regulation will manifest remains uncertain, but it seems clear that more heat will be taken out of the market. SPACs won’t disappear, but the heady times of 2020 and early 2021 may soon prove to be a flash in the pan.