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Shares of special-purpose acquisition companies are shrinking after the acquisition announcements, a marked reversal of enthusiasm for these vehicles earlier this year that could threaten their ability to do business.
Of the 13 Spacs that have announced acquisitions in May, only one is trading above $ 10, the level at which shares of blank check companies have an original price, according to an analysis of Financial Times ’Refinitiv data.
As of March, about nine out of 10 traded above $ 10 after a deal announcement, according to Spac Research, and many above.
Market experts have attributed the rough turnaround to the withdrawal from the market by institutional investors and the lack of interest from retailers, who have focused their attention on other speculative assets, such as cryptocurrencies.
“The retail component of the offerings has been a big problem,” said Ari Edelman, a partner at Reed Smith. “Much of the activity around Spacs in terms of how shares have been traded and the success of Spacs depended heavily on retail.”
The Spac boom has been largely supported by hedge funds who buy the structure early and use leverage to reduce profits. But the vast majority of them are sold once an agreement has been announced and are replaced by new investors eager to get a portion of the newly listed company. It seems that this is no longer the case.
“The decline in retail investors has been particularly bad,” said a major Spac sponsor. “Retail trade generated huge speculation from September until the bubble burst [in April] and now the Spac market is dead, dead, dead ”.
A few weeks ago, Spacs a “saving” of the share price was almost guaranteed once the company announced its merger goal. At times, even rumors about a deal, as with Churchill Capital IV of Michael Klein and Lucid Motors, sent shares of the company blank checks 80 or 90 percent.
Now, even large family name transactions fail to attract investors.
Soaring Eagle Acquisition, a Spac created by serial sponsor and former Hollywood executive Harry Sloan, is trading below $ 10, despite announcing last week a $ 17.5 billion deal to release Ginkgo Bioworks, backed by Bill Gates. Similarly, shares of Aurora Acquisition have declined 10 percent since it announced a $ 6.9 billion deal with SoftBank-backed mortgage lender Better.
If the trend continues, Spacs may be forced to repeat its operations to gain shareholder approval. Investors recover about $ 10 in cash if they decide against the deal and change their shares, which is why the $ 10 threshold is significant.
Aeye, which makes lidar sensors used for autonomous driving, re-agreed this month with a Spac sponsored by Cantor Fitzgerald this month, agreeing to a 20% reduction in the $ 1.9 billion valuation it announced in February. The company cited trading in public dealing companies and “the changing conditions of the car dealing industry” for the difference.
Additional reports from Madison Darbyshire
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