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SPAC Talk

Quality over quantity? While April drew a blank in terms of SPAC IPO pricings, May has brought two new SPACs to the market. The total number of SPAC IPOs stands at a somewhat paltry eight. Yes, the SPAC IPO market remains in its enduring state of stasis, but it is not all gloom. Five out of the nine IPOs successfully raised proceeds of more than $100 million, with three raising more than $200 million. The average IPO size is $147 million YTD versus $96 million for the 13 IPOs priced in 2H23. SPAC IPOs may be fewer, but those who pay underwriter fees are managing to raise more funds than has been the norm. We are also seeing serial SPAC sponsors returning to the IPO market, representing one-third of new issuance so far this year. Deal flow slows sharply. A trend shift that we have seen recently is the slowdown in the pace of new IBC deal announcements. With the first half of the second quarter completed, the pace of new deals has dropped sharply. Only two new deals were penned in April. Having entered the second half of May, four deals have been announced in the month thus far. YTD, 35 new deals have been announced, which is less than half the 77 announced in the first five months of 2023. Contributory factors include the dwindling pool of live SPACs seeking targets, which currently stands at 98. It is also taking longer to find merger partners as well as close deals, which makes it increasingly more expensive for SPAC sponsors as they extend deadlines and public shareholders elect to redeem shares with each extension. Moreover, the funding environment for small caps remains harsh. Seventeen merger agreements have been terminated YTD, which matches the total number of deal abandonments in 2021 when SPAC euphoria started to peter out. But, as our SPAC Talk Focus discovers in its look into deal flow trends, it’s not all bad news. Redemption rates ease...for now. Redemptions were virtually at the ceiling averaging 96% in 4Q23 but have enjoyed a gentle descent since then. Having dropped modestly to 93% in 1Q24, there has been a sharper drop thus far in the second quarter, with redemptions from the four de-SPACings completed to date in May averaging 85%. There are three SPAC merger votes (GGAAF, BWAQ, and GODN) scheduled before the month’s end, which could swing the average one way or the other. While these transactions may not close this month, the current average redemption rate of the three is 64%, but this is before redemptions that may occur around the merger votes.