SPAC activity continued to slow in the first half of 2022, a sharp decline from the number of deals and IPOs in the same period in 2021. Redemption rates soared, and a record number of SPAC deals were terminated, notes the Skadden, Arps, Slate, Meagher & Flom law firm.
Factors contributing to the slowdown include disappointing performance by newly de-SPACed companies, rising inflation, macroeconomic uncertainty and increased regulatory scrutiny from the SEC.
The PIPE market has also continued to tighten. Potential PIPE investors have also been scrutinizing potential SPAC deals more closely, both given the large number of SPACs searching for a deal and in light of recent performance issues of many newly de-SPACed companies. As a result, PIPE transactions have deviated from their traditional $10 per common share structures in order for SPACs to obtain the financing necessary to close their business combinations.
Lawsuits and demands continue throughout the SPAC life cycle. Filings of SPAC-related securities lawsuits through the first half of 2022 are on pace to exceed the total number of SPAC-related lawsuits filed in 2021.
SPAC participants also have to consider the new 1% excise tax on stock buybacks by U.S. public corporations starting in 2023.
Despite the challenges, opportunities remain in the SPAC market, and the Skadden firm expects participants will continue to explore innovative strategies to pursue transactions.
Nontraditional targets and structures will become more popular. SPACs have also found acquisition opportunities in emerging markets. According to Deal Point Data, in the first half of 2021, only 4.2% of business combination targets were headquartered in emerging economies, whereas in the first half of 2022, this figure increased to 10.4%. Read more.
