Now That the SPAC Party Is Over… How and When Will the $500B in Purchasing Power Be Spent?

The SPAC party that has raged on for the last six months – breaking every historical IPO record with the promise of a massive surge in M&A and a renaissance of the small cap IPO market – has virtually come to a close over the last two weeks. Weekly filings peaked at 38 in the second week of February, and there were 5 last week. Weekly IPOs peaked a bit later with 28 in the first week of March, but only 2 IPOs snuck by investors last week. Announced deals, which peaked with 11 in the second week of February, only managed 2 last week.

The SPAC market really hit the scene big in the third quarter of last year when we had a regular cadence of filings that had a healthy conversion to IPOs all the way through to a high volume of acquisitions. However, by the end of the year, every dealmaker and her brother – young, old, retired, whatever – felt they could pull off a SPAC and make a killing with 12 months of light work. Most great things that seem easy just aren’t so. So as we fast forward to 2021, we had a rush of filings now up to 151, a build-up of dry-powder IPOs currently at 222, and a mere trickle of 3 announced acquisitions per week for the last five weeks.

So what does all that mean? First off, the sellers have been more resistant than expected to the temptation of the SPAC, causing the massive build-up in tech dry-powder SPACs. The high prices and relatively poor after-market performance of the recent SPACs, along with the massive over-supply of newly-minted SPAC IPOs has caused a pull-back by new PIPE and IPO investors. So for now, the lower-tier banks may continue to push the filings out, but there will be no near term expectation of a successful IPO. There will continue to be just a trickle of successful SPAC IPOs. The big question is: will the 222 dry-powder SPAC IPOs start announcing quality acquisitions in volume? Without a high volume stream of solid SPAC acquisitions that perform well in the aftermarket, we will not see a re-opening of the SPAC IPO spigot.