During the first three quarters of 2021, there were 444 SPAC IPOs and in the same time period for 2022, there were just 78, according to S&P Global Market Intelligence data. Perhaps the largest phenomenon of the public markets in 2021, the SPAC flameout has surprised many dealmakers, but may be creating some unforeseen opportunities as well.
In December, KKR Acquisitions Holdings I Corp., one of the largest SPACs created, announced that shareholders would be paid back $1.2 billion and warrants tied to KAHC shares that were de-listed. Despite considering over 50 potential merger targets, the firm could not find the right opportunity and decided to wind-up down and return funds.
There are multiple factors contributing to the SPAC downturn related to rising interest rates undercutting the market, regulatory headwinds and a widening difference between buyer and seller consideration of fair value. On top of that, the breakdown in the speed and certainty of the reverse merger relative to an IPO which represented a large value proposition SPACS offered to private firms also drove down SPAC transactions.
However, despite the dramatic drop-off in M&A SPAC activity, industry insiders are stressing the idea that this downturn could yield an increase in some old-fashioned merger and acquisition activity involving publicly traded acquirers with late-stage, high-growth private firms previously out of reach in a SPAC market.
“Capital is still flowing into these companies because their businesses are fundamentally sound, but not at the same levels as 2021,” says Dan Siciliano, CEO of Nikkl, a Scottsdale, Ariz.-based company that specializes in investing in unicorn firms. “We expect significant consolidation to take place in the coming quarters, once investors and companies adjust to the new reality of their reduced share prices.”
–Cole Lipsky
