SPAC sponsors holding roughly $18 billion in cash are staring down a wall of deadlines over the next 30 days, as teams decide whether it’s worth fronting more cash or throwing in the towel.
(Bloomberg) — SPAC sponsors holding roughly $18 billion in cash are staring down a wall of deadlines over the next 30 days, as teams decide whether it’s worth fronting more cash or throwing in the towel.
There are more than 70 special-purpose acquisition companies in the next group of potential liquidations, data compiled by Bloomberg show. With investors increasingly asking for better terms to stick around, sponsors without automatic extensions will likely have to pay up to entice holders to stay — or close up shop and eat the roughly $8 million in fees they fronted.
The billions of dollars that are expected to be taken back by investors, paired with the more than a dozen sponsors that already laid out liquidation plans, are adding to the continuing pessimism in the SPAC market. It has been plagued by heightened regulatory scrutiny and a glut of deal-needy teams facing a lack of worthy targets. Meanwhile, a growing number of firms that went public via SPAC mergers are going bankrupt or being taken out at fire sale prices as investors shun riskier assets.
“There are going to be a lot of liquidations, but there will also be a lot of extensions,” said Eric Pestrue, portfolio manager at RiverNorth Capital Management. “A lot of investors are taking their cash back and that’s making a lot of the SPACs smaller.”
The SPAC structure includes a redemption feature that lets investors swap stock for the $10 per share they put up plus interest and any sweeteners. Recently, about 90% of SPAC shares have been cashed in when deals are approved or investors agree to give sponsors more time.
Guaranteed Returns
The high redemption rate has left the vehicles with a fraction of the money they raised, pushing some to smaller exchanges just to keep operating. More than 30 sponsors have already thrown in the towel this year, while 86 have bought more time in case they find a target and markets stabilize, data from Boardroom Alpha show.
The March wall of deadlines was on pace to be much larger in late 2022, before dozens of SPACs raced to close up to avoid a new 1% US excise tax. The US government pivoted late last year, allowing SPAC liquidations to avoid the levy, but the damage was done as more than 80 shuttered in December.
Sponsors have recently been paying investors for extensions to find and close deals. GigCapital5 Inc., which struck a merger pact with QT Imaging Inc. in December, plans to ask investors for more time to close the deal later this month with filings showing sponsors would pay $125,000 a month for the six-month extension.
“The yield is more of what we’re looking at,” RiverNorth’s Pestrue said by phone. “If the sponsor contribution works out to six, seven or eight cents (per share), that’s really attractive on its own.”
Some investors that get out may find newly forming SPACs that offer guaranteed returns more attractive. For example, Pono Capital Three Inc. put $10.25 per unit into its trust account, meaning early investors can see a guaranteed 2.5% return.
“We’re not expecting after an acquisition is announced that the SPAC will trade to $11 or $12 like they did in 2020 or 2021,” Pestrue said. “It’s really looking at the guaranteed return rather than having high expectations for the acquisition target.”
So far, seven blank checks have debuted this year, with 57 waiting in the wings, data from SPAC Research show.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.