There hasn’t been a new SPAC deal announced in months, after what seemed like a nonstop flurry of “SPAC-Attack!” announcements. Yet as I recall, SPACs raised $12 billion in 2007. According to research site SPAC Analytics, and 52 SPACs, or $10 billion worth, have yet to find an acquisition. If we subtract the $3.8 billion they raised in 2008, we can roughly estimate at least $6 billion worth of SPACs will be meeting their 18-month deadlines to strike a deal in the coming year.
Even if they do find a willing seller, those SPACs have a boatload of headwinds working against them.
For starters, you may have noticed the public markets have redefined ugly. SPACs have almost universally seen their share prices drop this year, which bodes poorly for getting a deal approved.
Then we have the natural buyer of SPAC shares—hedge funds. It’s an understatement to say they’ve been blasted by redemptions. The blind pools are dry as the desert, and their shareholders have every motivation to vote against any proposed merger to get their money back.
And of course, we have the targets. Even a “have to sell” seller in desperate need of capital is going to see the uphill battle of getting the deal approved, unless the valuation was so low that the seller was ripping itself off. As one source said, “to get a SPAC deal approved today you’re going to need an attractive deal, and by that I mean wildly attractive.”
So as the clock runs out on the many SPACs raised in 2007, we may see a number of them returning their money to shareholders and their managers, in turn, losing part of their investments.
(This is setting aside any sort of outlook for SPACs that have not yet gone public. Given the frozen equity markets, those are basically non-existent.)
Yet some predict 2009 will be the year of the SPAC. Not unlike those that forecasted the same for 2008. Only time will tell if these people are delusional or the next Peter Schiff’s.
The basic argument in favor of a SPAC comeback is that, in a time of limited capital, they can be the one source out there. They do have money. Valuations are low. Companies need capital. But as one source put it, “they’re going to have to spend a lot of money to file to get the deal approved anyways.”
And so, a SPAC’s best option in 2009 may be to merge, one source said. Takeovers require leverage and that’s nowhere to be found. But a merger is a way to spend the money without needing leverage. How that’d look, capital structure-wise, I have no idea.
Two of the largest SPACs in the market are Liberty Acquisition Corp, a $1.09 billion SPAC that debuted in DEcember 2007, and Sapphire Industrials, a $922 billion SPAC, struck in February 2008.