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Shares of companies that were made public through agreements with blank check companies have fallen an average of two-fifths of their highs, as appetite for the once-hot sector of the market US stocks are cooling rapidly.
Of the 41 blank check companies that have made transactions since the beginning of 2020, only three are even within 5% of their maximum prices. Eighteen of them have halved and there are several that have dropped by more than 80%. The average decline is 39%.
The figures come from the Financial Times ’analysis of Refinitiv’s data that tracks special-purpose acquisition companies that acquired businesses worth more than $ 1 billion and are obtained in the context of a broader rally in the U.S. stock market that set a new record high last week.
The Spacs, which raise money from investors with the promise of merging with an unidentified private company, have been one of the busiest segments of world markets over the past year. Nearly half of the $ 230 billion raised worldwide in new listings has gone to Spacs.
Less than two months ago, investors continued to chase enthusiastically Space higher shares after companies announced their acquisition plans. Groups ranging from electric vehicle developers and software companies to mortgage creators opted to go public through offers with a Spac rather than the traditional route of an initial public offering.
The frenzy saw blank control companies breaking records in terms of fundraising i negotiation in the first quarter.
But now the deals are slow to complete, as regulators take a closer look at the disclosures and revenue forecasts made by companies and institutional investors who usually fund the deals. show more caution. As a result, new releases of Spac have shrunk to shrink.
Shivaram Rajgopal, a professor at Columbia Business School, said that historically during a market frenzy there were a higher number of companies that did not work well and became public as they tried to overcome the wave, and this trend had true state for Spacs.
“When there is overvaluation, when the feeling goes crazy, the most marginal company is likely to go public,” he said.
Falling stock prices and the slowdown in new operations suggest that retail investors and other market players are cooling, particularly in emerging companies with little to show in relation to revenue or often even with a product, which were among those whose shares increased the most during the boom.
Shares in the launch of XL Fleet electric vehicles rose nearly 70 percent to a high of $ 35 after it was released through a Spac in December, before declining 80 percent to just under $ 7 the following months. Tortoise Acquisition Corp., the large company that made truck parts maker Hyliion public, saw its share price multiply by five after announcing the merger, but it is also on the stock list. of more than 80%.
Several favorites of retail investors have been attacked by short sellers, including the electric truck developer Nikola and battery developer QuantumScape.
Of the Spac deals completed since January 2020, eight have fallen so hard that they now trade below the $ 10 to which Spac shares were listed when they first raised cash.
This includes the two largest blank check contracts to date, the home loan originator United Wholesale Mortgage and the healthcare group Multiplan, which were made public in transactions with Spacs with the support of billionaire private equity investor Alec Gores and former Citigroup dealer Michael Klein, respectively.
Shares in Spacs that are still looking for deals have also declined. More than two-thirds of the 425 blank check companies listed since January are listed below $ 10, according to an FT analysis of Refinitiv data. This may suggest that there is skepticism for investors who will find acquisitions that provide added value.
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