SPAC Market Update: Why the Turbulence?

By Don Duffy

The last few days marked a short-term rally in the overall SPAC market.

Yet many de-SPACs continue to experience mixed trading, with some materially lower than their highs from several weeks ago. Why the turbulence? There’s simply too much SPAC product flooding the market. In fact, SPAC IPOs in Q1 2021 could exceed all of 2020, and as a result, the market is struggling to digest the volume. For example, on Wednesday eight SPACs priced, but six of those SPAC traded below the $10.00 offer price at some point in the most recent session.

Bankers and the buyside are likely overwhelmed with supply at a time when many SPAC sponsors are “re-loading” new SPACs, before their current SPAC completes its merger. This is adversely affecting demand for new deals and increasing churn in the shareholder base of de-SPACs. Moreover, it is diluting investor and media attention. The end result will most certainly be a higher hurdle for the target businesses in the de-SPAC. They will have to demonstrate valuation appeal, possibly through a bigger discount to peers. They will also need stronger marketing campaigns, and investors will require evidence of real business progress during the marketing window.

Ultimately, we believe this situation will self-correct with time. Issuance will slow somewhat while the market digests existing deals. The recent stimulus bill could also provide a tailwind. The theory is that a portion of the stimulus checks could reach the stock market, reigniting retail flows. Combined with institutions collectively catching their breath and refocusing, we believe SPACs will continue to be a great option for companies to go public in 2021.

For more insight into the latest developments into the SPAC market, download our Q4 2020 SPAC Market Update. If you have additional questions, please contact us.