We learn from this week’s DealFlow Report that a number of special purpose acquisition companies (SPACs) have completed mergers with private operating businesses recently. However, more seem to be unsuccessful than the alternative, at least in trading following completion of their mergers.
As we know, a SPAC completes an IPO as a shell, raising a bunch of money which is put in a trust. Then the SPAC merges with a company that wants to be public and also wants to use the trust money to build its business. SPACs had their real heyday in the late 2000s, but in early 2008 the latest wave pretty much died out. There was a small resurgence in the last year or so with smaller SPACs, raising $75 million or less, with a few exceptions.
One problem is that companies now don’t want to merge with SPACs if most of the recent performances of post-merger SPACs are not that great, which they haven’t been. One recent deal has done well, and the article points to several who indicate that if a few more like that are possible, that could help turn around the SPAC market.
The original investment in the SPAC remains attractive to many investors, especially with recent innovations that protect investors and speed the process and predictability of completing a merger. But convincing exciting growth companies to merge remains a challenge until more companies’ stock performance is strong after a merger.
The SPAC market is an important part of the reverse merger and IPO alternative landscape, and everyone wins when good deals get done and perform well. Go SPAC-meisters!
Also, to all my friends battling Hurricane Sandy as am I with my family, stay safe!!