Not Even a Raging Bull Market Can Rescue SPACs

Last month we spoke of the impressive Everything Rally in financial markets in 1H24 despite the absence of Fed rate cuts that were widely expected coming into the year — a rally that has extended to other major asset classes, including leveraged credit, commodities and cryptocurrencies. But we overlooked one corner of public equity investing that hasn’t seen any benefit at all during this fierce rally: special-purpose acquisition companies, better known as SPACs (also referred to as “blank check companies”), which have continued to unravel practically en masse while carving out their place in the lore of investing manias. The recent Chapter 11 filing of Fisker, Inc., an EV automaker taken public in late 2020 via a reverse merger with a SPAC¹ that sported a market value exceeding $6 billion within several months of the deal closing, was another reminder of how woefully many of these post-reverse merger SPACs have continued to perform. For the restructuring profession, this boom-to-bust reversal of fortunes for SPACs was arguably foreseeable and is still in the early innings.

Much has been written on the meteoric rise and fall of SPACs since 2020, when renowned investors, and often, famous celebrities² were rushing to cash in on the SPAC craze, thereby providing potential investment targets with an end-run to a fast-tracked IPO and a public listing. A New York Times article from December 2020 noted that 25% of global IPO proceeds in 2020 were raised by SPACs, easily an all-time high, with nearly 250 newly formed SPACs going public that year.³ It got even better in 2021. Overall, some $210 billion of equity capital was raised by nearly 750 large U.S. SPAC IPOs from 20192022, with the majority of capital ($126 billion) raised in 2021.⁴

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