A $500 million special purpose acquisition company backed by Ares Management Corp. is the first jumbo blank check firm to emerge after more than a year of mostly tiny offerings.

The alternative asset manager’s second blank-check effort shows there’s demand for SPACs amid a backdrop that has seen dozens shut down and a growing number forced to grapple with investors cashing out. Ares Acquisition Corp. II is the biggest SPAC offering to price since January 2022, when stock markets traded near all-time highs and hundreds of sponsors were still running to join the SPAC gold rush.

In 2021, more than 600 SPACs raised a whopping $163 billion, which compares with just 13 so far this year, with sponsors raising a median $69 million.

Blank checks have raised nearly $1.5 billion in 2023, data from SPAC Research shows, as the market for conventional initial public offerings has been mostly shut. SilverBox Capital raised an upsized $138 million for its third SPAC, SilverBox Corp. III, in February, as sponsors seek smaller pools of money. That puts jumbo SPACs in position to benefit if the wariness of IPOs disappears. 

“It could be an interesting opportunity for a bigger SPAC that maybe doesn’t have as much competition for some of the target companies they may be pursuing that are of larger size,” Jonathan Browne, senior investment analyst at RiverNorth Capital Management

Plenty of Time

Ares’s first SPAC — a $1 billion behemoth — struck a deal to take nuclear power technology firm X Energy Reactor Co. public in December, just months before the blank check’s initial deadline. In February, more than half of its investors opted to swap their shares for cash when the SPAC received an additional six months to get the deal across the finish line.

Units of its new SPAC — which account for one class A share and half of a warrant — are up 1.2 percent to $10.12 since debuting late last month. Warrants are deal sweeteners that entitle holders to buy more shares if the stock rises above a certain price and that dangle the prospect of an extra windfall for anyone who bets on the SPAC. Warrants for most SPACs have fizzled and trade at a fraction of what they were worth a year ago.

The SPAC has two years to find and complete a deal, far more time than most big SPAC peers amid an uncertain investing environment that’s been driving sponsors to expand the scope of potential targets. There are currently almost 200 SPACs with almost $47 billion in trust-seeking tie-ups ahead of deadlines in the coming six months.

The Ares offering was underwritten by Citigroup Inc. and UBS AG, marking a return by both big banks and a reputable sponsor — a rare combination amid the industry’s spiral. Despite the lackluster SPAC environment, some industry watchers expect it to be a successful venture.

“I don’t think they’d be willing to go ahead and do this SPAC IPO without a fair amount of confidence that they are going to be able to negotiate and complete a merger without massive redemptions,” said Jay Ritter, professor of finance at the University of Florida. However, “it’s also a gamble by the sponsors as to whether there is a continued negative sentiment toward SPACs.”