Deal-hungry blank-check companies dashing to meet deadlines are eyeing smaller targets as the SPAC mania that led to dozens of multi-billion dollar mergers fizzles.
(Bloomberg) — Deal-hungry blank-check companies dashing to meet deadlines are eyeing smaller targets as the SPAC mania that led to dozens of multi-billion dollar mergers fizzles.
Calidi Biotherapeutics Inc. and First Light Acquisition Group, a special-purpose acquisition company, are among the latest to announce a tie-up, assigning the biotech an enterprise value of $335 million. While another SPAC deal valuing Calidi at $449 million fell apart five months ago, the new tie-up underscores sponsors’ desperate hunt for targets as merger deadlines loom.
In the first 10 days of the new year, SPACs have announced at least nine deals, with those disclosing terms valuing targets at an average enterprise value of roughly $185 million, data compiled by Bloomberg show. That is a shift from a January average of $1.06 billion last year and a decline from the $2.22 billion average seen amid a boom in January 2021, according to SPAC Research data.
The move toward smaller transactions is a trend that has accelerated in recent months, partly driven by SPACs having less cash. Those with deals announced in 2023 raised an average of $160 million, according to data compiled by Bloomberg.
Another issue has been the mass redemptions, an aspect of SPACs that enable investors to swap their shares for their money back, which slashes the amount of money the newly public company receives. The average redemption rate for January so far is 80%, lower than last month’s record of 97%, but in-line with the elevated activity in the past year as the market churns, according to data from Boardroom Alpha, a SPAC research and analytics platform.
Investors still expect a string of SPAC deals to be announced over the coming months, building on the more than 50 that have been unveiled since October. However, market dynamics paired with a glut of more than 300 blank checks hunting for targets ahead of deadlines over the next five months means the focus on smaller companies is here to stay.
“Most deals will likely fall in the small and micro-cap space — sub-$2 billion — and perhaps that’s what SPACs should stick to,” said Julian Klymochko, chief executive officer of Accelerate Financial Technologies, which has a SPAC-focused fund. “We’ve seen some high-quality deals get announced and some IPOs get done in the past few months, but the SPAC IPOs are definitely smaller than they had been.”
It doesn’t get easier once the deals go through. The median company that went public in 2022 after a merger with a blank-check firm is down 67% in the past year, compared to a 16% drop in the S&P 500.
At least three SPAC tie-ups that have debuted on major exchanges this year have already suffered choppy performance as speculators flip the low-float stocks. Moolec Science SA swung between $22.20 and $4.35 in its first week on the Nasdaq while MultiMetaVerse Holdings Ltd. cratered to an intraday low of $2.40 earlier this week.
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