What’s Next for SPACs?

April 29, 2021 | Joe McGuane, CFA, Senior Research Analyst, Alternatives

Combined area and line chart showing SPAC deals and gross proceeds since 2009 by year. Chart subtitle: 2021 has already seen a record number of SPAC deals and gross proceeds. Chart description: Left Y-axis shows Gross Proceeds in $ Billions, ranging from 0-1,200. X-axis shows years from 2009 to 2021 as of April 28. Right Y-axis shows IPO count from 0-350. Gross proceeds in area is minimal from 2009 to 2014, with steady increase from 2014-2019 and a huge jump in 2020 ($83B) and 2021 ($100B). Line of IPO count follows similar trend (2020: 248 IPOs, 2021: 308 IPOs). Chart source: SPACInsider as of April 28, 2021.

The ferocious appetite for Special Purpose Acquisition Companies (SPACs) continued its momentum throughout the first quarter of 2021. Investors could not get enough of this asset class as a record amount of capital flowed into the space. Through March, 2021 has already seen more SPAC IPOs than all of 2020, with over 300 new deals coming to market. Similarly, gross proceeds thus far through April are already over $100B, well past the $83B that was raised throughout 2020. The space has gotten so hot that sports celebrities like Shaquille O’Neal, Colin Kaepernick, and Alex Rodriguez have all put their names on SPACs that have recently hit the market.

Can this momentum continue? The Securities and Exchange Commission (SEC) might have something to say about it. Earlier this month, the SEC issued new accounting guidance that would classify SPAC warrants as liabilities instead of as equity instruments, as they are currently classified. Warrants are given to capital providers like hedge funds that put up the capital for SPACs before an IPO, to offer the capital provider more upside once the company goes public. SPAC IPOs have since slowed, as affected SPACs would have to restate their financials if this becomes law. With this risk on the table, investors may begin to look elsewhere to put their capital to work, dampening this SPAC market frenzy.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Joe McGuane, CFA
Senior Research Analyst, Alternatives

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