The end of free money means the end of SPAC in the United States

The end of free money means the end of SPAC in the United States


The Fed gave, the Fed took back. At this time of bursting the financial bubble on Wall Street, this remark applies perfectly to SPAC special purpose acquisition companies, which continue to collapse in the stock market with the end of free money recorded by the US Federal Reserve. These companies were empty shells, listed on the stock exchange and were to buy companies with promising potential for the money entrusted to them by investors. These SPACs were called “blank checks” because investors did not know which company would be bought.

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This maneuver had the advantage of facilitating the target IPO without going through the slow and protective course of traditional IPOs, and collecting the stock market profit faster. Unfortunately, not everything went as planned, with the bursting of the SPAC bubble in January 2021. The shares, which were worth $ 10 (9.30 euros), flew away… collapsed before the fall. This is the case of the financial credit company SoFi, which rose from 10 to 28 dollars in January 2021 and has a value of only 4.80.

The same goes for Hims, which allows online ordering viagra, which fell from $ 25 to $ 3.50 after reaching a low of $ 2.72 in early May. We can also mention WeWork, a company with shared offices, which went public in the autumn of 2021 and lost more than 30% of its value, while the media group Buzzfeed fell by 55%. The SPAK ETF, the investment fund that buys all SPACs in the United States, has fallen in price by three since its peak in January 2021. It is clear that the savers who jumped on the bandwagon during the IPO lost their T-shirt.

Everyone opens their umbrella

From now on, it is the promoters of 600 SPAC who are looking for investments who risk losing $ 5 million to $ 10 million on the commissions they should earn during this type of operation. Explanation: They usually have two years to invest the entrusted funds, otherwise they must return them. The maximum amounts were collected at the beginning of 2021: according to Wall Street Journal, 280 vehicles of this type must invest in the first quarter of 2023.

Except it’s a disaster: stock market valuations are plummeting, unlisted companies don’t want to sell, and to save commissions, SPAC managers risk falling into low-quality companies. It is true that these companies pay less today, but they have much less promising prospects, with disruption of production chains, inflation and labor shortages. In addition, the parallel market, the classic IPO market, is almost frozen after the fireworks in early 2021.

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