Boardroom Alpha’s David Drapkin recently joined Jill Malandrino on Nasdaq Trade Talks to discuss SPACs. Watch the video or jump below for some quick brief bullets.
- 2021 was a watershed year in SPACs. Both market activity and hype obliterated the historical volume for the asset class and the big, fast shifts in sentiment and trades happened throughout the year.
- 2022 will also see a lot of activity and big, fast shifts in sentiment, and creativity, but instead of massive IPO issuance we’re expecting – and the market needs – a lot of deals, liquidations, and slower IPO pacing
- There are too many SPACs in the market right now and by ’22Q4 there could be over 300 SPACs over 12 months old looking for deals
- “Peak Deal” is a big concern going forward. Given the need to complete a deal or liquidate, will sponsors overreach and bring increasingly bad deals to the market?
- Getting IPOs done has been increasingly costly for sponsors (e.g. overfunding trusts, better warrants, etc), but it still remains very profitable and so they have incentives to continue issuing
- “One-and-done” SPAC sponsors will be culled and pay a higher price than trusted serial sponsors whom investors will start to strongly prefer.
- DeSPACs are stuck in a bad (very bad) rut and only a good run of very strong deals and strong post deSPAC trading will change that.
3 Take Aways for SPAC Investors
- SPACs are here to stay and can be a profitable trade if they know the plays and are on top of the details
- Watch for SPACs with trusted sponsors that offer yield and potential upside
- The SPAC market can change quickly and 2022 will see some big, fast changes that will present both risks and opportunities for investors, therefore it is critical to have the right tools to support your strategy