SPACs Went Up, Then Down, but They’re Not Out
And Mr. Ackman, whose initial SPAC transaction was scuttled by the S.E.C. last month, had planned for his SPAC’s sponsors to pay for their warrants rather than getting them for free.
Mr. Ackman’s $4 billion SPAC, the largest of its kind, was sued this week, in a case that also questions the very nature of the SPAC model. A few days later, Mr. Ackman said that if regulators blessed a new vehicle he calls a SPARC (special purpose acquisition rights company), he would return the SPAC investors’ cash and give them the right to buy into the new company, which he said improves on SPACs’ shortcomings — namely, by not locking up investors’ funds or imposing a deadline to complete a merger.
“If you find yourself in a leaky boat, often times you are better off switching boats than patching leaks to complete the mission,” Mr. Ackman tweeted.
Not all SPACs are bad
Despite the innovations of a few, SPACs remain risky for ordinary shareholders. “The only reason why someone would do a SPAC is because they found a sucker,” said Tyler Gellasch, executive director of the nonprofit organization Healthy Markets.
SPAC supporters say the transactions are an efficient way to raise public capital for growing companies while saving the time and avoiding the hassle of a traditional I.P.O. There will be ups and downs, but SPAC mergers will become a routine choice for some companies to go public. They also provide smaller investors with exposure to start-ups previously available only to professional ones, like venture capitalists.
But the latest group of SPAC sponsors may soon find that there are more of them than there are compelling companies with which to merge. And given that the two-year clock to seal a deal is ticking away, by late 2022, quite a few sponsors could be returning the capital they raised to their investors with nothing to show for it. (A version of that happened to Mr. McClendon’s SPAC, Avondale, which was shelved late in 2016, after Mr. McClendon’s sudden death.)
Mr. Gellasch believes that not all SPACs are bad, but the guaranteed remuneration for sponsors can reduce the incentive to pursue high-quality target companies, paving the way for bad outcomes.
Article source: https://www.nytimes.com/2021/08/21/business/dealbook/spac-market-future.html