The Nightcap from SPAC Track

SPACs may seem opaque to some, as money is raised through an IPO before a takeover target is identified. In effect, it is a bet that the sponsor of the SPAC can find a high value company to “acquire” into the public markets. When done well, it is an opportunity to unlock a high-growth company’s access to the capital markets and give it the capital it needs to scale for long-term growth.   

Like all IPOs, however, companies that go public via a SPAC are still a bet on the future. Some will succeed, some will fail. Everyone has to do homework and make independent investment decisions. There was a lot of froth in the SPAC market by the tail end of 2020 and the first quarter of 2021, but the market is now telling us something that we should listen to carefully. As of May 1, of 406 SPACs seeking transactions, 21% were below their standard IPO price of $10. And of 127 SPACs that had announced but not yet closed a transaction, 37% were also below $10 per share.  

This price action tells me we need more oversight and regulation. It is time to improve the regulations around the SPAC ecosystem with clear and rigorously enforced standards, to push for high deal quality and appropriate investor protections.