At least three special-purpose acquisition corporations, or SPACs, have pulled their plans for initial public offering in the past 24 hours amid rocky equity markets, in the latest signs the pandemic vehicle is losing ground.
SPACs, also known as blank-check companies, are shell companies that raise money in an IPO and then acquire a business or businesses. The vehicle became popular during the pandemic when record numbers of such companies were formed, but many have struggled in the last year amid regulatory scrutiny of the sector and some highly risky deals.
“‘The postponements will continue until morale improves.’”
The Defiance Next Gen SPAC Derived ETF
which invests in pre-deal SPACs as well as those that have completed mergers, has fallen 14% to date in 2022, as equity markets have been roiled by concerns about Russia and Ukraine, the global spread of the omicron variant of the coronavirus causing COVID-19, and a Federal Reserve that’s expected to start raising interest rates.
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The Dow Jones Industrial Average
has fallen 5% in the year to date, while the S&P 500
has shed 7%. The Nasdaq Composite
has fallen 11% after entering bear-market territory last week.
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“Everything is getting dumped: Investors are taking profits on their winners and cutting loose the losers,” said Bill Smith, founder and chief executive of Renaissance Capital, a provider of institutional research and exchange-traded funds oriented around IPOs, late last week. “The postponements will continue until morale improves.”
Do It Again Corp., a SPAC that was targeting a deal in the restaurant or food-service sector, withdrew its registration early Wednesday. The company is led by Clifford Hudson, who spent 35 years at Sonic Corp. and was seeking to raise up to $125 million.
Murphy Canyon Acquisition Corp.
which filed last June to raise $150 million in an IPO, withdrew its registration statement early Wednesday, and then withdrew the withdrawal, which it said was conducted in error. The company was formed by Presidio Property Trust and is led by its co-founder and chief executive, Jack Heilbron.
Murphy Canyon said it was seeking a target company in the real-estate sector, “including construction, homebuilding, real estate owners and operators, arrangers of financing, insurance, and other services for real estate, and adjacent businesses and technologies targeting the real estate space, which we may refer to as ‘Proptech’ businesses.”
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On Tuesday, CAVU Techology Acquisition Corp., which filed to raise up to $100 million in an IPO last March, also withdrew its registration statement. In its original filing, the company said it would target technology companies with an enterprise value of approximately $250 million to $500 million.
TCG Growth Opportunities Corp., which filed for an IPO last March with plans to raise up to $250 million, also pulled its deal. TCG was formed by the Chernin Group, whose chief Peter Chernin is a former CEO of the Fox Group at News Corp. That SPAC was aiming to target a company in the internet consumer space.
Last week, bitcoin miner Rhodium pulled its planned IPO amid a rout in crypto prices.
“Meanwhile, commercial REIT Four Springs Capital Trust attempted to go public offering a dividend yield below peers. Not in this market,” said Smith from Renaissance.
“For years, the phrase ‘path to profitability’ briefly came into fashion, then was promptly forgotten. This time seems different. For the foreseeable future, IPO investors will look for growth and profitability. Dividends. Lock-ups. Valuations with crystal-clear upside,” he said.
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Roughly half of the companies that completed SPAC deals last year are down 40% or more from their $10 issue price, the Wall Street Journal reported last week. Two notable names in that group are sports betting company DraftKings Inc.
and space-tourism company Virgin Galactic Holdings Inc.
founded by billionaire Richard Branson.
SPACs go public by selling units at $10 each, consisting of a single share and a fraction of a warrant, which then split and are separately traded. The warrants can typically be exercised at $11.50 after a deal is completed, a steep discount that acts as compensation to investors for locking up their cash for the time needed to find a business to combine with.
DraftKings shares have lost 58% in the last 12 months, while Virgin Galactic is down 78%.
Last week, Acorns Grow Inc., a savings app, pulled its $2.2 billion SPAC agreement, and became the 10th company to end a deal since November, according to Dealogic data cited by the Wall Street Journal.
The IPO market has gotten off to a weak start in 2022, with the Renaissance IPO ETF
down 24.6% in to date this year.