ICR’s July 2023 SPAC Market Update & Outlook Report shows SPACs remain a viable near-term pathway to the public markets.
Six SPAC IPOs raised just over $1 billion, the slowest quarter by deal count since the first quarter of 2017, as SPAC sponsors faced elevated redemption rates, deal terminations, and liquidations. Even with fewer IPOs, seasoned sponsors raised more capital and opted for longer expiration terms. SPAC IPO proceeds increased modestly over Q1 2022 with the six SPAC IPOs completed raising an average of $186 million, up from an average IPO size of $82 million from the 11 SPAC IPOs in Q1 2023.
During Q2 2023, 10 companies completed SPAC mergers, down from 28 in Q1, and the slowest quarter for closed SPAC mergers in nearly three years. Sponsors increasingly targeted international companies, with a slight majority of the quarter’s merger targets based outside the U.S. This compares to 23 traditional IPOs in Q2 raising a combined $6.7 billion. While traditional IPO deal count held steady from the prior-year period, quarterly proceeds were the highest in six quarters, even after excluding J&J spin-off Kenvue’s $3.8 billion IPO.
“With primary issuance markets showing signs of opening, there is a substantial backlog of IPO candidates waiting to come to market. SPAC transactions give quality companies the opportunity to access the U.S. public markets sooner than they otherwise would waiting for the right IPO window,” said Don Duffy, President of ICR. “Redemption rates dropped slightly as targets’ valuation and profitability become more compelling. The SPAC shareholder vote is just the beginning of the public market journey for a new public company. In order to unlock value for all stakeholders, SPACs require an advisor with experience across capital markets, investor relations, and public relations through the SPAC marketing process and beyond.”
“Sponsors are still looking for deals, with 40 companies announcing SPAC mergers in Q2 and a backlog of over 150 pending mergers at quarter-end that should keep the SPAC market active in 2023,” said Niren Nazareth, Managing Director at ICR Capital. “Furthermore, the SPAC PIPE market is still open for high-quality companies as well as those with sponsor or affiliate support. We actively advise clients on structuring and sequencing to optimize their SPAC financing package, including credit and equity PIPEs for EBITDA-generative businesses. ICR can provide unparalleled insight and support given our leading market share in SPAC transaction advisory.”
“While the public convertible market is open to de-SPAC issuers, ‘stock borrow’ continues to be challenged for many former SPACs. H1 2023 saw three convertibles by former SPACs: two were refinancing transactions and one was a fresh capital raise,” said Syed Raj Imteaz, Head of Convertible and Equity Derivatives Advisory at ICR Capital. “We expect that as the broader equity markets perform, de-SPAC stock technicals will also improve which will allow them to come to the convertible market. Until then, many of our financing discussions with former SPACs are around private capital raises at significantly higher cost of capital.”
ICR is the largest advisor and communications consultant to SPACs, having worked on over 150 transactions since 2021. To obtain a copy of ICR’s July 2023 SPAC Market Update & Outlook Report, please click here.
