The SPAC machine is losing its steam.
As sentiment around speculative pockets of the market turns south, the volume of public offerings through special purpose acquisition companies (SPACs) has sharply abated to the lowest level in two years, according to PitchBook data.
After a blowout year for SPAC activity in 2021, only 78 SPAC listings were issued in the three-month period ended March 31 with a median deal size valued at just half of what it was last year. In the first quarter of 2021, SPAC IPO issuance shattered records, with roughly 300 blank-check companies raising nearly $88 billion — more than in all of 2020, when the SPAC revival began to pick up.
The slowdown in a once-manic pace for public offerings via blank-check deals comes amid a broader sell-off of risk assets that has hit the SPAC market especially hard as investors reappraise high-growth companies priced during last year’s environment of elevated valuations.
“In the same way that companies pull IPO plans rather than list during a negative pricing environment, we believe potential SPAC targets may opt to delay or forgo any negotiations until there is a clearer picture of the markets,” analysts at PitchBook said in a recent report.
The deceleration in SPAC IPOs parallels a similar drop-off in de-SPAC activity — a merger that involves a publicly-listed SPAC buying a target private business. The first quarter of 2022 logged only 30 de-SPAC transactions, compared to 81 in the same period last year.
PitchBook’s research found that these newly-public companies have fared particularly poorly despite their rising popularity before last quarter’s slowdown. De-SPACs have significantly underperformed the S&P 500, with the majority underperforming during the last year.
“The recent rout in public markets, which began around the last few trading days of 2021 and has continued through the first quarter of 2022, has steepened the rate of loss for these recently public companies; however, the initial slide in performance started much earlier in 2021,” PitchBook said.
Companies that have gone public through SPAC mergers posted a decline of 47.8% since 2018, and a 35.6% drop since the beginning of 2022 compared to the S&P 500’s 59.4% gain since 2018 and 10.6% decline year-to-date, according to PitchBook’s new deSPAC Index.
Closely-watched names that went public last year by merging with companies listed-through SPACS reflecting some of those losses include sports betting company DraftKings (DKNG), which is down nearly 40% year-to-date, and electric car manufacturer Lucid Motors (LCID), down 47% since the start of the year.
Analysts emphasized in their note that the report is “not a condemnation of the SPAC vehicle in its entirety,” since the company that merges with the SPAC must deliver on its operating plan, but emphasizes that SPAC deals were priced in the valuation climate of 2020 and 2021, “which consisted of some of the most elevated multiples in history — especially for companies with growth prospects.”
Also likely to weigh on the outlook for SPACs are new rules proposed by the Securities and Exchange Commission (SEC) that would require companies being acquired through SPACs to undergo more stringent disclosure procedures relating to future projections, conflicts of interest, and potential dilution upon issuance of additional shares, and the possibility of PIPE financing (private investment in public equity) drying up, which helped fund about 80% of last year’s deals.
“The macroeconomic headwinds for the once-manic SPAC market look to be substantial, and the outlook is uncertain for both new listings and mergers,” PitchBook said.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc