RIP, SPAC (Special Purpose Acquisition Company) craze.
Going public via a SPAC became all the rage late in 2020 and into 2021 because of its relative ease versus the traditional IPO route and the fact everyone on the Street seemed to be doing it. Now the process has darn near crashed.
New research out from Goldman Sachs strategist David Kostin on Thursday shows that only six new SPAC IPOs have come to market in the second quarter of 2021. For context, Goldman notes, at this point in the first quarter, 55 SPAC IPOs had already been completed. In the first quarter, there were a whopping 277 new SPAC issuances raising an impressive $91 billion in proceeds.
To be sure, the second quarter will mark a severe slowdown in new issuances compared to the first quarter based on current run rates.
The retrenchment comes in the wake of a March 31 statement from the U.S. Securities and Exchange Commission (SEC) that expressed concerns over the reporting, accounting and governance of SPACs. That was followed by a second statement from the SEC on April 12 that focused on the accounting treatment of warrants on SPACs.
Kostin says in light of the heightened regulatory scrutiny, the pullback in new issuances is "warranted."
Goldman CEO David Solomon has also given a nod that perhaps the SPAC market had gotten too hot, and reforms are needed.
"We continue to believe that providing sponsors a mechanism to access public markets for capital formation is an innovation that’s here to stay," Solomon said about SPACs on the company's April 14 earnings call. "However, as a meaningful participant in this market, we will continue to be thoughtful regarding the transactions we underwrite, with a particular focus on the quality of sponsors, sponsor economics, investor protections, and disclosure. We believe the industry should evolve on these important issues in the interest of more efficient and transparent markets."
Despite the greater caution around SPACs, there remains a good deal of money on the prowl for a transaction. Goldman's Kostin estimates $129 billion of SPAC capital is currently searching for a company to take public.
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