RIP SPACs

This is not investment advice and intended for entertainment purposes only 

For a while in 2021, it felt like all people could talk about was Special Purpose Acquisition Companies or SPACs.

Now it feels like they’ve fallen off a cliff.

There appears to be inversion of logic when it comes to the process of funding companies through SPACs since the public can buy shares before the company can sell them.

The company can go public without going through the IPO process and usually trades with a price point typically around $10.

What’s the upside?

It makes it easier for companies to go public without enduring the grueling IPO process - that’s why it’s nicknamed the “Blank Check Company.”

What’s the downside?

It makes it too easy for companies to go public and can invite bad actors essentially that are companies that would not have been given the SEC thumbs up to be publicly traded. Now they are available for retail traders to expose themselves to owning a company that may not be legitimate in the same way other companies that underwent that due diligence that comes with the terms of the traditional IPO route.

Where are they now?

Through April, there were just 14 total SPAC offerings in 2023. This is down dramatically from the prior two years of 613 in 2021 and 86 in 2022.

With SPACs there is typically a 3 year timeframe they can extend their deadline which they have to merge with a company or else they liquidate.

If the trend continues, I believe that 2024 will be the year of many liquidations and the overall end of the road for many SPACs born in the 2021 frenzy.

Don’t we want to make it easy for innovators to get capital and, well, innovate?

SPACs have a lot of pros to go along with the evident cons of their structural integrity. They can incentivize irresponsible due diligence practices which come back to bite investors when the acquired company ends up being a flop. They can also be huge wins with a lot of upside.

Like any investment, with risk comes reward.