You can enable subtitles (captions) in the video player
2020 was undoubtedly the year of the special purpose acquisition company, or Spacs, as we have come to know them. These blank cheque companies, which raise money on the stock market and then search for private companies to take public, have pulled in billions of dollars from institutional and retail investors. But as Spacs have proliferated they have also attracted intense scrutiny from regulators.
Some of the best known companies to have gone public through Spacs have faced investigations from the Securities and Exchange Commission. Among them are fantasy sports betting platform DraftKings, one of the most successful Spac mergers to date, as well as popular electric vehicle start-ups, Nikola and Lordstown Motors.
At issue are some of the key features that have made Spacs popular with early stage companies looking to raise money for growth. That includes the ability to show optimistic revenue projections in investor marketing presentations, as well as the fast track route to public markets, enabled by Spacs, which have raised questions around due diligence. Even Wall Street veterans, such as Bill Ackman, have had a hard time navigating a tougher stance from the regulator.
The billionaire was forced to scupper a deal to acquire a 10 per cent stake in Universal Music through his Spac, following intervention from the SEC. The first major SEC case came in July. The regulator issued fines against Momentus, a space transportation start-up, and Stable Road Acquisition, the Spac it had struck a deal with, for misleading investors. It marked the first crackdown of its kind and sent a clear warning to Spac deal makers.
So where does this leave the Spac market? The immediate effect is a significant slowdown in both fundraising and deal making. The long-term impact could be that a large majority of the hundreds of Spacs currently searching for companies will be forced to go back to their shareholders, without a deal.
Why many Spacs may be left without deals
Pinoy Variant