SPAC listings in the US have hit record levels in the last couple of years, with 248 going public in 2020 and 630 joining them in 2021, City Index reports. Not only has the number of SPACs increased markedly, but the amount of money being raised and the size of the targets in their crosshairs has also grown significantly.
There are currently 679 SPACs at various stages of development listed in the US, according to Stock Market MBA. But only 92 of these are currently in the process of completing a deal to take a private company public, with the other 587 still searching for a suitable target.
That is significant. This means US SPACs are expected to find 587 suitable businesses to the market within the next 24 months. That is a big ask considering that there have been fewer than 475 IPOs, which is seen as the traditional way for a company to go public, every year in the US apart from 2021 (when IPOs also hit a record high). This means SPACs will find it increasingly difficult to find a target that it can buy within the required timeframe, and is likely to lead to either a drop in the quality of businesses being bought or a rise in the number that fail and have to return cash to shareholders.
Regulators elsewhere around the world have not embraced SPACs in the same way and remain more cautious toward them. A more favorable regulatory environment in the US is one of the reasons it has attracted most of the listings over the last couple of years.
SPACs have listed in London for decades. Indeed, they were a popular way for the rush of companies aiming to capitalise in the frenzy for tech stocks in the dot-com era (partly explaining why some still regard them to have a bad reputation) and around $2 billion has been raised by them in London since 2017 alone, according to Norton Rose Fulbright. Still, that remains tiny considering US SPACs raised a staggering $137 billion in 2021 alone.
But the UK Financial Conduct Authority introduced new rules in August 2021, when it made several changes to the listing rules in order to accommodate the unique nature of SPACs. However, they are still regarded as more stringent compared to the US and other markets, and there is a debate about whether they will provide a realistic framework for SPACs to thrive in. The FCA, despite giving SPACs the green light, continues to warn that they are a ‘more complex instrument’ for investors, which need to tread carefully “regardless of whether a SPAC has structured itself to comply with our new rules and guidance.” Read more.
