Companies Need Enhanced Strategies to Reduce Investor Redemptions and Mitigate Warrant Overhang
SEC Proposes New Rules for SPACs and De-SPAC Transactions
NEW YORK – April 13, 2022 – ICR, a leading strategic communications and advisory firm, today released its Q1 2022 SPAC Market Update report.
SPAC IPO issuance slowed substantially in the first quarter of 2022, compared to the record-breaking first quarter and full year of 2021 where SPAC IPO issuance, SPAC mergers and completed transaction more than doubled. In the first quarter of 2022, 54 SPACs raised $10.1 billion, a decrease of approximately 68% and 71%, respectively, when compared to the fourth quarter of 2021, when 166 SPACs raised $34.2 billion.
“SPACs, companies, and their investors are seeking communications advisors that bring capital markets expertise, investor relations, deal communications, and PR to the table, and we are the largest integrated global platform to deliver that. In addition, as the market has gotten more challenging, they are also seeking enhanced plans and strategies to mitigate investor redemptions,” said Don Duffy, President, ICR.
The full year of 2021 was again transformative for both the IPO and SPAC market. In 2021, 613 SPAC IPOs raised over $150 billion, compared to 248 raising over $70 billion in 2020. The start of 2022 is tracking much differently, with the slowest first quarter in six years with only 18 traditional IPOs raising $2.1 billion. SPAC IPO activity continued to reflect a more sustainable level of activity with 54 offerings that raised $10.1 billion, a 90% drop in proceeds over the unsustainable levels the prior year.
“Despite the challenging market environment, there is a robust backlog of companies ready for when the IPO market reopens. Additionally, the SPAC IPO issuance today reflects a more normalized cadence of deals and we expect that serial sponsors with successful track records will continue to utilize the structure to bring the right business to the public market,” said Lee Stettner, Co-Head of Capital Markets, ICR Capital.
The increase in SPAC redemptions has also had a negative impact on the de-SPAC companies’ ability to execute on their business plans with a direct reduction to cash on its balance sheet and reduced access to capital through lower post-merger float.
“Redemption rates have increased from 11% in the first quarter of 2021 to 85% in the first quarter of 2022, which has reduced share liquidity and increased warrant coverage for many post-merger SPAC companies,” said Niren Nazareth, Managing Director, ICR Capital. “We are actively advising de-SPAC management teams on strategies to reduce cap table complexity in order to improve access to capital.”
The SEC has just proposed significant new rules regulating SPACs and de-SPAC transactions. There is a public comment period through next month, and the final rules are expected to become effective later this year.
“The proposed rules will have a significant impact on all participants in the SPAC market. While the comment period and additional SEC commentary will likely provide further clarity, as proposed these rules appear to be drafted to narrow a perceived gap between the disclosure/liability applicable to de-SPACs versus traditional IPOs,” said Duffy.
ICR is the largest advisor and communications consultant to SPACs, having worked on more than 100 transactions over the last year. To obtain a copy of ICR’s Q1 2022 SPAC Market Update report, please click here.
Established in 1998, ICR partners with its clients to execute strategic communications and advisory programs that achieve business goals, build awareness and credibility, and enhance long-term enterprise value. The firm’s highly-differentiated service model, which pairs capital markets veterans with senior communications professionals, brings deep sector knowledge and relationships to approximately 1,000 clients across more than 20 industry groups. ICR’s healthcare practice operates under the Westwicke brand (www.westwicke.com). Today, ICR is one of the largest and most experienced independent communications and advisory firms in North America, maintaining offices in New York, Norwalk, Boston, Baltimore, San Francisco and Beijing. Learn more at www.icrinc.com. Follow us on Twitter at @ICRPR.
Brian Ruby, ICR, 203-682-8268, firstname.lastname@example.org