SPAC Market Trends and New Developments

Over the last 3 years, Special Purpose Acquisition Companies (SPACs) have become an increasingly popular way to gain capital and take a company public on the market. In fact, there were 613 SPAC initial public offerings (IPOs) in 2021, a significant increase from the 248 in 2020. The total SPAC IPO proceeds also nearly doubled last year, increasing from $82.1 billion in 2020 to more than $162 billion in 2021. However, experts are calling the 2021 SPAC market a ‘rollercoaster’ thanks to the never-before-seen highs at the start of 2021, followed by a significant dip in Q2. Despite this slow down, the activity level in the second half of the year was still higher than any six-month period in history, other than the first half of 2021.

To date in 2022, the SPAC market has been facing significant challenges on the regulatory and marketing fronts. For example, there were only 13 new deals announced in April while more than 600 SPACs continue to search for targets. SPACs are unique in a number of ways, but the most critical at the moment, is the fact that SPACs have a limited amount of time to find an operating company to merge with (often 24-36 months); if a SPAC fails to complete a merger within the time frame stated at its initial funding, it must cease to exist and return all capital to its shareholders. All of the current SPACs are under pressure to complete a merger as their respective clocks continue to tick. Given the market environment and geopolitical landscape at the moment, it is an especially difficult time for SPACs. Let’s explore the challenges for SPACs given the current regulatory environment with respect to SPACs.

Challenges from the SEC

In 2021, SPACs came under increased scrutiny from the U.S Securities and Exchange Commission (SEC), which led to higher levels of enforcement activity from the SEC across the SPAC and de-SPAC (merger with an operating business) market and increased tensions for SPAC investors. In late 2021, the SEC expressed concerns about the potential for misleading information, fraud, and conflicts of interest in certain de-SPAC transactions. Therefore, the SEC proposed new rules to eliminate information asymmetries among investors, safeguard against misleading information and fraud by regulating market practices, and mitigate conflicts of interest by better aligning incentives between gatekeepers. Currently, the outcome that companies are reporting is that the SPAC process is longer and more arduous than ever,
with a more extensive regulatory review of proxy and registration statements.