"No Place to Invest" US SPAC Boom 'Virtually Over'... Year-End Liquidations Follow

[Asia Economy New York=Special Correspondent Joselgina] Special Purpose Acquisition Companies (SPACs) that have failed to find investment targets are choosing liquidation one after another. The 'SPAC boom,' which led the New York Stock Exchange and was favored by investors until the first half of this year, is considered to have effectively ended.

According to the Wall Street Journal (WSJ) on the 25th (local time), more than 70 SPACs have decided to liquidate and return funds to investors just since December. This exceeds the total number of SPAC liquidations carried out so far. The entities that led the establishment of SPACs are estimated to have incurred losses of more than $600 million in the liquidation process this month alone, and over $1.1 billion for the year.

This domino liquidation is due to the market freezing up amid the Federal Reserve's (Fed) aggressive interest rate hikes and recession concerns. For SPACs, which have made money by merging with high-growth potential unlisted companies and listing them on the stock market, the lack of suitable acquisition targets has left them at a crossroads. SPACs, nominal companies established solely for mergers and acquisitions (M&A), must undergo liquidation procedures if they fail to complete a reverse merger within two years of establishment. It is reported that the two-year deadlines for most SPACs are concentrated in the first half of next year.

John Chashas, head of investment bank Matthew Sella Advisors, evaluated, "SPACs, once regarded as a fantastic means of wealth creation, have now become a poisoned chalice." The average valuation of startups announcing SPAC mergers has plummeted from around $2 billion last year to about $400 million this quarter. Additionally, the upcoming implementation of the Inflation Reduction Act (IRA), which imposes a 1% tax on share buybacks starting next year, is also cited as one of the factors accelerating year-end SPAC liquidations.

WSJ reported, "In the coming weeks, more SPAC founders will join this liquidation trend," noting that this trend is impacting major Wall Street investors who led the SPAC boom, such as Chamath Palihapitiya, KKR & Co, and TPG. According to SPAC research, there are currently about 400 SPACs without investment targets, with an estimated fund size of $100 billion. Michael O'Regan, a professor at NYU Law School, predicted, "If 200 of these SPACs are liquidated, losses will far exceed $2 billion." Approximately 300 companies went public through SPACs during the two years of the SPAC boom.

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