SPACs

[weijian]

Much of us have read about SPACs, especially in the last year. And I thought Prof Aswath has a good summary and also the pros/cons for the average person to understand it better.

Due to the shift in the way information flows and the gatekeeper's role, the small business or individual has been hugely empowered. It seems to be now encroaching into the traditional role of the IPO underwriter.

As in all asset classes and business models, it needs to be baptized by at least 1 full market cycle before we can determine if it lasts or not.

The Rise of SPACs: IPO Disruptors or Blank Check Distortions?

In perhaps the most comprehensive look at the phenomenon, researchers at Stanford and NYU law schools took a look at SPACs last year, and in addition to finding that 85-90% of investors in SPACs are large institutions, they record a troubling fact. While SPAC shares raise $10 per share at the time of their offering, the median SPAC holds only $6.67 per share, at the time it seeks out a target, with the loss due to the dilution caused by subsidizing sponsor ownership and other deal-seeking costs.

http://aswathdamodaran.blogspot.com/2021...rs-or.html

[weijian]

In a short span of ~1.5 to 2 years, the SPAC boom is over as similar to many speculative markets.

SPACs wipe out half of their value as investors lose appetite for risky growth stocks

SPACs, once Wall Street’s hottest tickets, have become one of the most hated trades this year.

The proprietary CNBC SPAC Post Deal Index, which is comprised of SPACs that have completed their mergers and taken their target companies public, has fallen nearly 50% this year. The losses more than doubled the S&P 500′s 2022 decline as the equity benchmark fell into a bear market.

https://www.cnbc.com/2022/06/27/spacs-wi...tocks.html

[BRT]

the current environment should be quite good for the SPACs that have not done their mergers. capital tightening, interest rates rising, market is cautious, harder to raise funds etc. while the boom is probably over for the SPACs that have completed their mergers, i think we'll continue to see SPAC money getting deployed regularly in the coming months.

[weijian]

the current environment should be quite good for the SPACs that have not done their mergers. capital tightening, interest rates rising, market is cautious, harder to raise funds etc. while the boom is probably over for the SPACs that have completed their mergers, i think we'll continue to see SPAC money getting deployed regularly in the coming months.

When you say "good for the SPACS", do you mean it is good for the sponsors, the shareholders or the sellers?

The main driver of companies going public, will always be the owners of the company (ie. the sellers I refer to in my above question) looking for a way to cash out. It is not because of sponsors' expertise/relationships or sharing wealth with the shareholders.

And so I reproduce what Prof Aswath as mentioned below:

Looking at SPACs in the context of banker-run IPOs and direct listings, you can see some of the reasons for their surge in popularity. First, since SPACs go public and raise capital first, and then go on a search for targets, they may be more time efficient, where they can do deals  to take advantage of short windows of market opportunity. Second, on the disclosure front, while the information disclosure requirements for SPACs largely resemble those for conventional IPOs, SPACs have more freedom to make projections and spin stories, albeit with basis and within reason. Finally, the SPAC sponsors take on the search and deal-making roles, using their industry knowledge to do due diligence and negotiate the best prices, in effect replacing investor due diligence with their own.

Well, It does sound good on paper that SPAC sponsor will be doing the "due diligence" using their industr knowledge and expertise. But theory and reality are vastly different and when theory does meet reality, it is the exception more than the rule.

[BlueKelah]

SPACs is just another type of financially engineered product. Its nothing more than a byproduct designed to channel the excess liquidity pumped into markets by the FED. All that cheap zero interest capital had to find some way into the market.

"In 2019, 59 were created, with $13 billion invested; in 2020, 247 were created, with $80 billion invested; and in the first quarter alone of 2021, 295 were created, with $96 billion invested. Then there’s this remarkable fact: In 2020, SPACs accounted for more than 50% of new publicly listed U.S. companies."
https://hbr.org/2021/07/spacs-what-you-need-to-know

I view them as part of the EVERYTHING BUBBLE that we have now in the USA and globally,
Property bubble
Tech Stock bubble including SPACs
Bond Bubble.

Much like 2007 when everything started correcting when fed started tightening, we are likely looking at a crisis like event in the near term. Likely 2H2022 if not 1H2023.

[weijian]

Bernard Arnault-backed Singapore SPAC nears merger with Kacific: sources

A SINGAPOREAN blank-check company backed by asset manager Tikehau Capital and a group of prominent European financiers is nearing an agreement on a merger with satellite Internet provider Kacific Broadband Satellites, according to sources with knowledge of the matter, as it races to meet a January deadline.

A deal would be Singapore’s second SPAC merger, after Vertex Technology Acquisition announced Oct 2 it will combine with Taiwanese streaming platform 17Live. Under the local stock exchange regulations, SPACs have 24 months after their IPO to find a target, and may be able to extend by as much as 12 months, before they are liquidated.

https://www.businesstimes.com.sg/compani...ic-sources

[weijian]

Everyone's hoping that NT can weave some magic, abeit against the odds.

In general, IPOs are still preferred over SPACs in this region. If SGX isn't even attracting enough big weight IPOs, then SPACs are probably going nowhere. We may have seen the last of them in the near/medium term come Jan2024.

Despite dissolving of Pegasus Asia, Spac framework is here to stay: SGX

Pegasus, which raised gross proceeds of $170 million in its January 2022 IPO, is sponsored by European asset manager Tikehau Capital and Financiere Agache, a luxury goods company backed by LVMH chief executive Bernard Arnault’s family office.

The third and remaining SGX-listed Spac, Novo Tellus Alpha Acquisition (NTAA), has until January 2024 to announce a potential business combination.

Securities Investors Association (Singapore) president David Gerald said that Pegasus’ decision to liquidate is “a much better outcome than it rushing into a badly structured business combination at a lofty valuation”.

He added that the SGX could fine-tune the Spac structure based on the experience of the first three Spacs, noting: “There is nothing fundamentally wrong with the Spac and this outcome had more to do with market conditions.”

Prof Mak said that most companies usually opt to list via IPOs, while those looking to list through a Spac are likely to prefer the US market for liquidity and valuation.

https://www.straitstimes.com/business/sg...o-dissolve