SPACs Have Sent Back Nearly $30 Billion To Investors

The SPAC sector has been a major source of corporate finance in the U.S. So far in 2023, nearly $30 billion from Special Acquisition Companies have already been given back to investors. Wall Street firms including KKR
KKR
and TPG have all liquidated their SPACs and returned money to investors, as the number of available companies to buy continues to plummet.

The Breakdown You Need To Know: CultureBanx reports that a SPACs main goal is to raise capital and its major downfall is that there are too many blank check companies willing to do this work. According to the De-SPAC index, out of all the companies that have completed their deals, the returns are down by 67% with another 22% below the 2% mark. Companies that went public this way have lost more than $100 billion in market value.

Early investors in companies that went public via special-purpose acquisition companies sold shares worth $22 billion through well-timed trades, profiting before share prices collapsed, according to The Wall Street Journal.

The fact that the majority of the SPACs failing are tied to public figures is also another reason why their failure rate is so high. Specifically, 21 out of 33 SPACs tied to famous public figures posted negative returns for 2021, according to Bloomberg. So it’s not a shock to see Tiger Woods’ SPAC fall short of IPO goals. The stock market also tends to be irrational so as soon as the public figure starts to do things perceived as negative, the stock price falls.

It’s not just athlete-backed SPACs that performed pretty dismally, also entertainer-backed SPACs were poor performers as well. If we take a look at rapper and business mogul Jay-Z, his cannabis focused SPAC, The Parent Company, performed the worst with an 84% plunge.

Situational Awareness: The future of SPACs is uncertain though they’re not going away. However, The Wall Street Journal analyzed more than 460 companies that did SPAC deals and identified 232 with insider sales based on a review of Securities and Exchange Commission filings. Clearly problematic for the sector going forward as it’s already losing billions of dollars.