The Race to Find a Target: SPACs After the Boom & Bust

Dear friends and colleagues:

Now that Goldman, Morgan, Millennium, Fidelity, and the rest of Wall Street has shut down our good friend, Mr. SPAC, the sponsors of 220 dry-powder SPACs may have to revert to the “shake n’ bake” move to pull off their acquisitions.

In all seriousness, the pressure is now very high for these newly-minted SPAC IPOs to do a fundamentally sound acquisition. There have only been 9 tech SPAC acquisitions in the last month, which is down significantly from the 24 average of the last three months. We’re now seeing sponsor concessions required on 59% of the 2021 deals and a resounding 15 out of the last 19 deals (79%).

Completed tech SPAC deals are down 20% since the beginning of the year with the speculative EV deals down 49% and likely no longer a welcome proposition for the PIPE investors. The scrutiny by these gatekeeper PIPE investors is at its highest level since the beginning of the SPAC renaissance. To get a deal approved, the target now needs to be fast-growing with stellar product positioning and KPIs, as well as a management team and infrastructure that is ready to deliver and report on a quarterly basis.

Three of the four announced SPAC acquisitions in the last two weeks continued to test the limits for high priced deals with one at 30x revenue, another at 20x, and the third at a lowly 18x revenue multiple. The Grab acquisition was huge at $31B off of a $500M SPAC and a $4B PIPE. That’s 63x acquisition leverage and a 20x revenue multiple for Singapore’s Uber look-alike that’s trading up 27%. Good to see sponsors cutting great deals ☺ . Beyond the sky high valuations, SPAC backers now have to contend with SEC scrutiny on accounting, projections and sponsor incentives. When stocks fall like SPACs have and continue to fall, shareholder lawsuits are sure to follow.

As new frontiers in SPAC land are explored, there will continue to be turmoil and re-calibration before more refined and predictable ground rules take hold. Don’t hold your breath though. We still have to see how the 123 closed and announced SPAC deals perform as young public companies and how the 220 dry powder tech SPACs unload their $500B+ in purchasing power.

Please feel free to reach out with any questions or comments.