SPACs used to be a curious capital-markets sideshow. This changed when stockmarkets rallied from their covid-induced lows
Save time by listening to our audio articles as you multitasks used to be a curious capital-markets sideshow: complex, obscure, hardly novel. A conventional initial public offering underwritten by investment banks was the marker of corporate maturity; merging with a pile of cash and entering the stockmarket by the backdoor was not. This changed when stockmarkets rallied from their covid-induced lows: more than 800s raised capital between May 2020 and December 2021.
Ironically, much of this money, once chasing some of the riskiest tech bets out there, has been parked in finance’s dullest quarter. Approximately $160bn currently sits in trust accounts, invested in risk-free Treasuries. It could be ploughed into the next white-hot tech stocks in early 2023, when the countdowns end and investors’ cash is returned. Until then, being locked up in awithout the prospect of a merger resembles investing in a money-market fund.
Astute investors know better than to hang around for the blank cheque to blossom into a real business. After aannounces a merger, investors are given the chance to redeem their shares and have their investment returned. Average redemptions are running at more than 50%. Excluding additional funding and deals hanging in limbo between announcement and completion,s since 2020 has found its way onto the balance-sheet of an operating company.
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