The SPAC market hits a wall as emissions run out and the valuation bubble bursts

Traders on the floor of the NYSE, August 1, 2022.

Source: NYSE

The SPAC boom is officially a thing of the past.

Not a single special purpose acquisition company was issued in July as the market slowdown turned into an abrupt halt, according to CNBC calculations of SPAC Research data. Sponsors who once took advantage of a hot market were forced to take a break as investor interest waned and regulatory pressure increased.

SPAC investors turned their backs on high-growth speculative stocks with unproven track record after many of these companies failed to meet inflated forecasts. Meanwhile, regulators have begun scrutinizing deals that lure investors with forward-looking statements after a boom in 2020 and 2021 created more than 600 target-hunting SPACs before time runs out.

“I think it was a once-in-a-lifetime experience, just like during the Internet bubble,” said Jay Ritter, a finance professor at the University of Florida. “A year ago, the whole market overpayed and now we have a reset. Giving a $ 500 million valuation on a zero-revenue company … those days are gone.”

A recent acquisition highlighted how absurd SPAC ratings were during the mania. Nikola recently announced that he will buy Romeo Power in a $ 144 million transaction. That’s only about 10% of Romeo Power’s rating when it merged with a SPAC less than two years ago.

Along with the depletion of emissions, liquidations are on the rise amidst difficulties in finding suitable targets. Three deals were unveiled last month, including Bill Ackman’s $ 4 billion Pershing Square Tontine record, bringing the number of liquidations this year to 10 deals. In all of 2021, according to the calculations, only one SPAC was liquidated.

“We expect the acquisitions landscape to remain highly competitive and feel that many SPACs are likely to come under pressure in time to find suitable targets,” Venu Krishna, deputy head of US equity research at Barclays, said in a statement.

– Gina Francolla of CNBC contributed to the reporting.