(BFM Bourse) – After several years of acclaim on the stock markets, investor interest in SPACs has taken a turn for the worse in a context of risk aversion. A project well put together upstream could, however, restore momentum to a very shaky market.
With interest rates rising, credit conditions tightening, the euphoria surrounding SPACs – those investment vehicles that raise funds on the stock market to acquire a company (unknown at this stage which) and merge with – fell like a soufflé. Investors have also turned their backs on these blank checks (or “blank cheques”) in the face of tougher regulations, which would make them less attractive. In March 2022, the American market regulator, the SEC, unveiled a series of new rules that will impose more transparency on SPACs, whose opacity has often been criticized.
Since SPACs have no past transactions or financial statements to review, their success depends critically on the reputation of the people in charge of the operation. These are all factors that led to the deflation of a speculative bubble. Some companies have even been forced to throw in the towel, like Sports & Health Tech Acquisition Corp, the SPAC promoted by professional golfer Tiger Woods, which on Wednesday abandoned its $150 million IPO plan. .
This “blank check” company asked to withdraw its registration for its IPO project on Wednesday from the American stock market policeman. Last year, it said it was targeting companies operating in the sports or health technology sector with an enterprise value of $600 million to $1 billion.
A significant number of liquidations
“After a phenomenal success in 2021, particularly in the United States, where more than 160 billion dollars were raised, 2022 posted poor stock market performance and a large number of liquidations for lack of acquisition projects validated on time, reducing investors’ interest in SPACs”, explains Thomas Hornus, partner at EuroLand Corporate.
This was in fact calling into question the very essence of the existence of a SPAC. These very special companies have a given time to decide on an acquisition opportunity, which must be approved by the shareholders’ meeting or the board of directors of SPAC. “If the project is refused, the sponsors continue their search within 24 months. If the operation is carried out within this period, SPAC becomes a listed company like any other. If the operation is not carried out, SPAC is liquidated” recalls Thomas Hornus.
Moreover, SPACs listed in France on the regulated Euronext market “are mainly aimed at qualified investors who have the necessary knowledge to assess the proposed arrangement” adds the specialist.
Source EuroLand Corporate
“Most publicly traded SPACs that traded have mostly disappeared, with the De-SPAC index, a basket of former publicly traded blank check companies, having fallen 67% in the last year,” recalls for his part Bloomberg. And according to data compiled by Barchart, more than a dozen companies resulting from a merger with a SPAC have lost at least 80% of their stock market value since their peaks.
For Thomas Hornus, the SPAC market could become attractive again on condition that it restores investor confidence by “carrying out their IPO (IPO, editor’s note) on a valuation consistent with their project” but also by “identifying potential targets further upstream. to acquire”. The final condition for restoring investor confidence is that these SPACs pay the targeted target(s) at the “fair price”.
Sabrina Sadgui – ©2023 BFM Bourse