(BFM Bourse) – Created almost 30 years ago, the concept of the SPAC experienced a resurgence in popularity in 2020 and 2021. But now, two years after the start of the euphoria on these so-called “blank check” companies “, the weather is now turning stormy…Several companies have lost more than 70% of their stock market value since their all-time highs.
It is an alternative route to the stock market that has tempted a growing number of candidates: the SPACs, or “Special-Purpose Acquisition Company” during the pandemic. The SPAC boom has allowed a wide cross-section of companies to enter the stock market directly without having to go through the cumbersome and complex process of a traditional initial public offering (IPO).
Behind this acronym, which may seem barbaric, hides a company without operational activity which raises funds on the stock market with the sole objective of making one or more acquisitions. An empty shell which is introduced upstream on the stock exchange on the basis of succinct documentation – no activity or results to present – by asking investors for a kind of blank check. The only promise: to use the funds raised to acquire an unlisted company in return. Once the operation is completed, the SPAC renames itself with the name of the acquired company, which gets its hands on the funds raised, and that’s it. The post-pandemic stock market boom has given a second lease of life to these unique investment vehicles.
A tougher regulatory framework in the United States
But with interest rates rising, credit conditions tightening, the euphoria around SPACs has died down. Investors have also turned their backs on these blank checks 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.
As 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. In June, Forbes had given up going public by merging with a SPAC.
The century-old American press group known for its rankings then mentioned adverse market conditions. The operation, initially announced at the end of August 2021, was to enable Forbes to raise approximately $600 million, through the SPAC (Special Purpose Acquisition Company) Magnum Opus Acquisition Limited, IPO in March 2021. Moreover, most of the companies that merged with SPACs in 2021 recorded sharp declines in the stock market. What vaccinate investors to this type of operation.
“Tesla Killers” in bad shape
According to data compiled by Barchart, more than a dozen companies resulting from a merger with a SPAC have thus lost at least 80% of their stock market value since their peaks. Among the companies on the panel in bad shape, Barchart notes 3 “Tesla Killer” which could be translated gently as “rivals of Tesla”.
Among these “Tesla Killer”, we find the start-up Nikola, at the origin of a concept of heavy-duty trailers with electric propulsion (either by battery or by fuel cell). Arrived on the stock market in June 2021 via its acquisition by SPAC VectoIQ Acquisition, the title renamed Nikola – name which refers to the American inventor of Serbian origin Nikola Tesla, from whom Elon Musk had already been inspired – accuses more than…. 97% decline from peak. In other words, a person who invested $10,000 in Nikola would only have $300 in shares of the Tesla Killer.
Canoo, another start-up dedicated to electric vehicles also had its heyday in December 2020 by registering a high of 20.20 dollars. Since these stock market heavens, the other “Tesla Killer” has lost 95% of its value on the stock market and is vegetating painfully on the 1 dollar. In February 2021, Lucid Motors made a thunderous IPO with the promise of overtaking Tesla with its high-end Lucid Air vehicle priced from $69,000 to $170,000. Since its stock market zenith at more than 55 dollars, the title has lost “only” 75% of its value over one year.
The curse surrounding these “Tesla Killers” is also spreading to the entire automotive sector, including the British Cazoo, which has lost 97% of its stock market value since its annual highs of $13.60 in February 2021. 2018, the online car seller went public on Wall Street at the height of the SPAC madness, shunning the City of London, its home market. Cazoo has seen its sales suffer from the reopening of dealerships after post-pandemic lockdowns and its price too.
Source: Barchart
SPACs are dead, long live SPACs!
What is observed in the United States should not be extrapolated to other SPAC markets and in particular the European market, insists Veronika Zukova, Head of Product Development PERE, at Societe Generale Securities Services in Luxembourg.
In a note with the somewhat provocative title “SPACs are dead, long live SPACs!”, Veronika Zukova recalls that it is not very relevant to compare the American and European markets, the latter not being directly affected by the rules. of the American stock market policeman. The future of the European ecosystem “will rather be influenced by the success of the existing SPACs”. “Furthermore, there is potential for the European market to benefit from an upward move as more US players are attracted to the European market (80% of recent ‘de-SPAC’ deals in Europe have been carried out by American SPACs)”, adds the specialist.
And what about France? This process intended to list a company on the stock market without going through the IPO box still remains almost confidential. A few SPACs have adorned the Parisian rating like Accor, which announced the raising of 300 million euros by its SPAC or Mediawan, the first SPAC to list on the Paris Stock Exchange in 2016.
More recently, Deezer has again talked about this alternative method of listing on the stock market. Seven years after a first failed attempt due to unfavorable market conditions, the French music streaming platform was introduced last July via the SPAC I2PO owned by the Pinault family, Matthieu Pigasse and Iris Knobloch, a former WarnerMedia executive. And for the moment, Deezer’s stock market journey is more of a false note than a sweet melody. Valued more than 1 billion euros during its IPO, the ex-unicorn is only a shadow of itself. After five months of listing and a 60% drop in its price, Deezer only weighs 382 million euros on the stock market.
A month later, it was Teract, a company resulting from the merger between SPAC 2MX Organic, and the distribution branch of the agricultural cooperative InVivo, owner of Gamm Vert and Jardiland, which made its IPO. Its manager then conceded when the operation was launched that it had been carried out “during the worst period for the markets”. Since its first steps on the stock market, Terract has lagged 20%, however much less than Deezer. Even if the popular adage reminds us that cabbage and carrots should not be mixed….
Sabrina Sadgui – ©2022 BFM Bourse
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