Stocks slide again after the jobs report sends mixed signals on the economy.
BuzzFeed is off to a rocky start on the road to becoming a public company. Shareholders on Thursday voted on its deal with a special purpose acquisition company, or SPAC, as BuzzFeed News union employees staged a daylong strike over contract negotiations. The merger was approved, but the company said it had raised only $16 million from the deal, far less than the over $250 million it had hoped for.
Because investors do not know what company a SPAC plans to acquire, they have the opportunity to redeem their shares at the I.P.O. price before a merger is official. When a SPAC’s shares trade below this price, as has been the case with BuzzFeed’s merger partner, these redemptions can be significant, leaving a company with less money than expected when it agreed to a deal. This highlights a major challenge for companies engaging in SPAC deals, the DealBook newsletter reports, making this popular route to market less attractive.
SPAC redemption rates have been around 50 percent this year, up from 20 percent last year, according to Dealogic. Companies that relied on this cash have responded to redemptions by adding debt financing to deals (BuzzFeed has a $150 million convertible note to fall back on) and by rewriting the terms of mergers.
But the biggest SPAC deal of all bucked the trend. Grab, the Singapore-based “super app,” began trading on Nasdaq on Thursday after closing its roughly $40 billion SPAC merger with almost no redemptions. Shares of Altimeter, the SPAC buying Grab, have been trading above their I.P.O. price for months, and investors may also be heartened by a $4 billion private investment that accompanied the deal. Grab is also more established than many other companies that have recently gone public via a SPAC.
Investors are “really starting to understand the benefits of a super-app business model that’s very distinct from what you see in the U.S.,” Grab’s president, Ming Maa, told DealBook.
Low redemptions, though, don’t guarantee a smooth first day of trading. Grab’s stock closed Thursday down 21 percent, which may be partly because Grab structured its deal to allow most employees, aside from senior executives, to sell their shares. (Altimeter’s chief executive, Brad Gerstner, has called employee share lockups “one of the most insidious things” about the traditional I.P.O. process.) There was also heavy interest from short-sellers in the stock.
The proliferation of SPACs, alongside a hot market for traditional initial public offerings, has made 2021 the first year since 1997 that the number of public companies has increased, according to Bank of America. This follows years of worries that regulation made it too onerous to become a public company, leading start-ups to stay private for longer and depriving retail investors of the chance to buy into promising firms. SPACs have made it easier and faster for companies to go public, but recent trends might lead some to question whether it was worth it.
Article source: https://www.nytimes.com/live/2021/12/03/business/jobs-report-stock-market