Struggling SPACs that are facing a broad investor desertion are moving their listings to smaller exchanges in an attempt to keep alive their hopes for eventually cutting a deal.
(Bloomberg) — Struggling SPACs that are facing a broad investor desertion are moving their listings to smaller exchanges in an attempt to keep alive their hopes for eventually cutting a deal.
At least seven special-purpose acquisition companies have down-shifted to stock exchanges with more lax requirements this year after the vast majority of investors pulled out their money. That means blank-check firms with less than a minimum number of publicly held shares or a smaller investor base can survive.
The shift delays the possibility that SPAC sponsors will lose millions if they are forced to throw in the towel, while leaving in place the potential for big profits if a deal can be arranged in the future. High redemption rates and a choppy macroeconomic environment have forced 146 SPACs to liquidate in the past five months alone. That has made the search for a new strategy all the more intense, says Matthew Tuttle, chief executive officer at Tuttle Capital Management.
“While a down-list strategy may be viewed as a junior varsity move by some, we take the side that it’s a smart transitional step in the going public process,” Tuttle said by email. “Eventually the sensible business combinations will attract outside capital.”
Rocky Ride
Blank check companies like Williams Rowland Acquisition Corp. and Adit EdTech Acquisition Corp. have moved to the NYSE American exchange, which has its roots in the old American Stock Exchange, after more than 80% of investors swapped their shares for cash. Meanwhile, Deep Medicine Acquisition Corp. moved its listing to the Nasdaq Capital Market, which is for smaller and more speculative companies, because it didn’t have enough publicly-held shares.
Amid the shift, there are still about 335 blank-check companies holding a combined $72 billion in pursuit of deals, according to data from SPAC Research. And with the IPO market still in the doldrums, businesses looking to go public are opting for SPAC tie-ups, with 31 announcing mergers in 2023.
For the companies that have pushed SPAC tie-ups across the finish line this year, it’s been a rocky ride. The median 2023 de-SPAC is down more than 40% from its debut.
As a result, just six SPAC IPOs have priced this year, raising a total of $523 million, according to data compiled by Bloomberg. That’s on top of the five ventures lined up to raise $440 million in the coming months, also well below recent trends.
“If you look at these deals that folks jammed through and end up with 3% or 5% float that raises a lot of questions over whether you were doing the right thing,” Taylor Sherman, a director at CohnReznick Advisory, said in an interview last month. “That’s because the sponsors have put a few million dollars up front to form the SPAC,” which will be lost if they have to shut down without a deal.
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