The SPAC bubble is deflating. Another dangerous stock market flop
The SPAC bubble is starting to pop, and this will lead to some damage. A SPAC stands for Special Purpose Acquisition Company, and is a tool for buying and listing a company. A SPAC is an empty company created only to buy another company and then, after a merger, take it on the stock exchange. The SPAC is usually born on the initiative of an institutional investor, more or less serious, who, once created, makes an IPO, that is, it shares, then purchases the target company with the resources raised. Except that often those who propose the SPACs are not very serious, just as the target companies are not always so and even those who participate often do so only to speculate shortly.
The SPAC bubble began with the collapse of famed Nikola Motors and has continued ever since, with short sellers and market skeptics unveiling the less attractive and more dangerous elements of a company's normal IPO activities.
Chamath Palihapitiya, once called the "king of the SPACs", is now more likely to be seen as the face of a SPAC bubble that appears to be about to burst.
As a result of the bursting of the bubble, banks are starting to abandon financing for SPAC transactions. A recent example was Simplifi Holdings, which, when it attempted to go public last month for a value of nearly $ 2 billion, found that bankers, mutual funds and hedge funds were very reluctant to finance the transaction. found with a fistful of flies in hand, according to Reuters .
And this is just one of the "dozen" companies that have canceled or reconsidered due to climate change for SPACs. This was reflected in the Defiance Next Gen SPAC Derived ETF, which fell 28.1% over the past 3 months. Because doing SPACs was not risky enough, it was also necessary to make derivatives and ETFs on everything.
Now investors in SPACs have realized that they have not been successful or have bought companies that are too young and fragile, unable to guarantee the promised immediate returns. They practically bought the “Canistracci oil” of our days.
To attract the wealthiest investors, SPACs often offered them shares below the market price, according to the PIPE (Private investment in public equity) formula, but that too was over. Amir Emami, global co-head of SPAC Coverage at RBC Capital Markets, said: "Investors at PIPE are really holding back in recent weeks and are focusing on more quality opportunities."
The number of SPACs has plummeted: only 30 companies have merged with the SPACs since the beginning of April, up from 69 from February to March.
Tad Freese, partner of Latham & Watkins LLP, said: “Most of the SPAC mergers that are announced are trading below $ 10 per share soon after, so there is a very real possibility that people will redeem their own. actions and knocks them down ".
60% of the 146 SPAC mergers that have been announced since the beginning of the year are now trading below the IPO price of their SPAC, Reuters notes.
This bubble eventually burst too, after those of cryptocurrencies. After all, the fate of the bubbles is to burst.
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The article The SPAC bubble is deflating. Another dangerous stock market flop comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-bolla-delle-spac-sta-sgonfiandosi-altro-pericoloso-flop-di-borsa/ on Wed, 26 May 2021 07:00:34 +0000.