The special purpose acquisition company (Spac) boom is cooling. Spacs are shell firms that list on the stockmarket in order to raise cash. They then use the money to merge with another company.
For start-up founders, Spacs offer a route to a public stockmarket listing that is less bureaucratic than the traditional initial public offering (IPO). They have been used to launch everything from electric-vehicle (EV) makers to space tourism business Virgin Galactic.
Around 250 Spacs launched in America last year, raising $83bn. Between February and March, 69 companies agreed to merge with Spacs, but that number has fallen to just 30 since the start of April, say Echo Wang and Anirban Sen on Reuters. Dozens of firms have ditched merger plans of late.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
No wonder, says Heather Somerville in The Wall Street Journal. Flotations have started to flop. An analysis of tech firms that have gone public with Spacs since the start of 2020 found that share prices have since fallen by an average of 12.6%. Public markets demand quarterly updates and ask tougher questions than venture capitalists, who are more willing to take a punt.
These signs of “market discipline” are welcome, says The Economist. Some Spac deals have been driven by “extreme delusion”. Five EV firms that went public via Spacs last year say they can go from “making no [sales] to $10bn... in under five years… Not even Google [did] that”.
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Why undersea cables are under threat – and how to protect themUndersea cables power the internet and are vital to modern economies. They are now vulnerable
-
India's stock market drops - why it's thrown investors into frenzyNifty 50, India's stock market index, has dropped 8% from a September record amid concerns of an economic slowdown and foreign investors pulling out
-
Warren Buffet invests in Domino’s – should you buy?What makes Domino's a compelling investment for Warren Buffet's Berkshire Hathaway, and should you buy the UK-listed takeaway pizza chain?
-
4Imprint makes a strong impression – should you buy?4Imprint, a specialist in marketing promotional products, is the leader in a fragmented field
-
Invest in Glencore: a cheap play on global growthGlencore looks historically cheap, yet the group’s prospects remain encouraging
-
Should you invest in Trainline?Ticket seller Trainline offers a useful service – and good prospects for investors
-
Key takeaways from the MoneyWeek Summit 2024: Investing in a dangerous worldIf you couldn’t get a ticket to MoneyWeek’s summit, here’s an overview of what you missed
-
DCC: a top-notch company going cheapDCC has a stellar long-term record and promising prospects. It has been unfairly marked down
