What happens to the SPAC market during 2022 may determine its long-term place within capital markets and M&A. Most deal makers don’t expect to top last year’s highs, but the big question is whether SPACs will normalise at a reduced level, or vanish as quickly as they came…
- Just 19 percent of respondents to the Refinitiv Deal Makers Sentiment Survey anticipated further growth in the number of new special purpose acquisition companies (SPACs).
- In North America, home to the majority of SPAC activity, U.S. regulatory changes have depressed sentiment.
- However, deal makers believe that SPAC sponsors will still come to market.
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Nearly half of deal makers expect the number of new special purpose acquisition company (SPAC) launches to fall this year, according to Refinitiv’s Deal Makers Sentient Survey 2022. Just 19 percent of deal makers anticipated further growth in the year ahead.
The caution follows a bumper 2020-2021, where the market went from negligible activity to peaking at $35bn in new listings in the month of March 2021, as this innovative yet controversial way of ‘hacking in’ to stock-market investors went mainstream (at least in the U.S.).
SPAC flotations cooled off somewhat going into spring, to raise between $5bn-$12bn a month for the remainder of the year.
Refinitiv canvassed deal makers in late autumn when there were signs of a resurgence. But with the turmoil of 2022’s opening quarter, the market has all but ground to a halt.
Expected decline in SPAC market
In North America, home to the lion’s share of SPAC activity to-date, proposed U.S. regulatory changes have depressed sentiment somewhat, with more than half of deal makers expecting a decline in the number of new SPACs.
The new rules will mean SPACs will no longer be able to cut short the verification process but will be obliged to conduct due diligence before approaching a company and while in the process of merging. Even if sentiment were to recover, this will lengthen processes, reducing the number of deals that can be completed for a period, from the time the regulation takes effect.
This general caution is in contrast to a consensus that SPAC sponsors will continue to come to market. Just one-tenth of deal makers anticipate a decline in new manager formation, while 41 percent expect more teams will try to raise vehicles in 2022.
Sentiment is also more positive around the prospects of SPACs successfully putting their capital to work, with 86 percent of global deal makers anticipating broad success in acquiring suitable target companies.
Are SPACs here to stay?
In our interviews with more than 470 deal makers worldwide, the topic of ‘SPACs’ or ‘SPACs vs IPOs’ was a consistent theme, even with those outside of the equity markets.
This is reflective of the sudden nature of the increase in SPAC activity. The big question is whether it will prove to be a historical blip, or whether SPACs can stay around long enough to become a permanent and important feature of the equity capital market and M&A landscape.
The data spells a grim picture, but it has been a tough first quarter for all risk-on strategies.
What happens during 2022, from a sentiment, performance and regulatory perspective, may prove decisive in setting the long-term future (or sealing the fate) of this innovative strategy that, if nothing else, has demonstrated there is a real market for the regulatory arbitrage of the IPO process.