A flurry of would-be SPAC deals have recently turned south, dealing a further blow to the already beaten-down market for blank-check companies.
Financial media giant Forbes and online ticketing platform SeatGeek were the latest casualties of a cooling SPAC market, with both companies revealing within a 24-hour period that they would abandon deals to go public via combinations with blank-check sponsors.
Forbes said Tuesday it would scrap its closely-watched merger after the magazine’s publisher announced last year it would go public through a deal with Hong Kong-based Magnum Opus Acquisition, a SPAC led by ex-Point72 executive Jonathan Lin.
The move to terminate its plan coincides with a similar decision by SeatGeek, which also said Tuesday it axed a $1.35 billion SPAC transaction with RedBall Acquisition Corp, citing "volatility in the public markets."
SPACs, or special purpose acquisition corporations, raise money from investors through an initial public offering and then seek targets to bring public through this vehicle. After a boom for the space in the past two years, SPAC activity has sharply pulled back as investors turn away from more speculative assets.
The risk-off mood has placed a strain on pipelines for mergers with special-purpose acquisition companies and led some highly-anticipated transactions to be scrapped entirely.
In the first quarter of 2021, SPAC IPO issuance shattered records, with roughly 300 blank-check companies raising nearly $88 billion — more than was been raised in all of 2020, during which the “SPAC renaissance” began to pick up, data from Pitchbook reflected. But only 78 SPAC IPOs took place in the three-month period ended March 31, with the median deal valued at just half of what it was the year prior.
And completed deals involving publicly-listed SPACs acquiring target private businesses — or de-SPAC transactions like those called off by Forbes and SeatGeek — totaled only 30 in the first quarter of 2022, compared to 81 in the same period last year, per Pitchbook.
This recent cooldown in the SPAC market comes as investors reassess the prospects for high-growth companies amid a backdrop of rising interest rates and uncertainty about the economy.
“The way these things get priced is often based on revenue projections, and the revenue projections were extremely high,” Michael Dambra, an accounting professor at the University of Buffalo, told Yahoo Finance Live on Wednesday, adding that cash flows for many such companies were not coming in as projected.
“Since deals are priced based on forward multiples, it creates expectations that aren’t getting realized and cash flows are not coming in, which gives substantial doubt that these firms will be able to stay active in public markets,” he added.
In a recent report, research firm Audit Analytics indicated at least 25 firms merging with SPACs between 2020 and 2021 have issued so-called "going-concern warnings,” meaning a company’s auditor has deemed the firm unlikely to make it through the following year, the Wall Street Journal reported last week.
Despite a sputtering market for SPACs, deals are still getting done. Freightos, a digital platform for global freight-booking services, is in the works to go public through a deal with special purpose acquisition company Gesher I Acquisition Corp. The newly combined entity is projected to have pro forma enterprise value of about $435 million, according to a report from Bloomberg News.
Regulatory scrutiny has also weighed on the outlook for SPACs. The Securities and Exchange Commission (SEC) recently outlined plans to require companies being acquired through SPACs to undergo stricter disclosure procedures relating to future projections, conflicts of interest, and potential dilution upon issuance of additional shares.
“The problem when you look at investor presentations that project out revenues is you see huge amounts of growth but not a lot of historical information," Dambra sad. "If there was more equivalent disclosure, it may have prevented the pop we have seen in SPAC markets and the decline we are seeing now."
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc