Fortune’s Term Sheet examines three key factors that continue to drive the SPAC market. Here’s some of what’s at play:
• There’s a natural delay in the SPAC market. A lot of SPAC deals take months to come to an agreement, then five or six months to go from announcement to completion. When de-SPACed companies started performing poorly on the public markets, that was only the first line in the cog. First, the returns go sour. Then redemption rates start to go up, then deals are terminated, then the SPAC entities are liquidated and sponsors face millions in fees. Deal announcements that were made in May, for instance, have been in the works for several months.
• Capital may not be the main driver to going public. SPAC mergers really aren’t generating much capital for companies right now, because redemption rates are soaring. Pre-existing investors and stakeholders or executives want an exit, or companies are taking a more long-term view and want to be a public company so they can eventually take advantage of capital markets.
• Boutique investment banks are still ready to do deals. For years, big investment banks avoided the niche SPAC market. It was largely boutique investment banks playing in this space—that is, until SPACs became too popular to avoid during the pandemic. But even as players like Goldman Sachs pull back, smaller players are still picking up the slack. Read more.
