Inflation Came in Hot (Again), Adding Fuel to the SPAC Redemption Fire

by | Feb 10, 2022

A lot of hopes have been riding on inflation pressures easing in 2022. That didn’t happen in January, however. It’s likely that rising inflation will continue to put pressure on SPAC redemptions and deSPAC financing.

CPI Shows Inflation is Surging

  • Thursday’s Consumer Price Index (CPI) numbers show inflation increased 7.5% YoY in January, above consensus of 7.3% — representing the fastest rise since 1982 and an acceleration from 7.0% YoY in December.
  • The Biden administration and the Federal Reserve have been betting on inflation to remain contained to a handful of industries — and decline over time. The 0.6% rise in the Consumer Price Index last month undermines this theory.
  • The bright spot here is that high inflation coincides with a robust jobs recovery. The bad news is that wages are not keeping up.
  • The important thing to look at here is the velocity of money, particularly for household income. Average hourly earnings rose 5.7% over the 12 months ended in January—but consumer prices rose 7.5%.   
  • Continued high inflation increases the risk of a virtuous cycle that could take more aggressive action to unwind and risk slowing the economy.
  • Yield on two-year Treasuries up 0.13 percentage points

SPAC Impact: Rising inflation adds fuel to the redemption fire

  • Rising inflation clearly raises the cost of financing for deSPACs.
  • A continued upward inflation trend will likely continue to fuel the already rising rate of redemptions as investors look for additional liquidity.
  • Rising interest rates also doesn’t help already cooling sentiment around smaller, non-profitable deSPACs, which have already been hurt in a risk-off environment.
  • SPAC returns have been generally weak since the start of the year. Defiance Next Gen SPAC Derived ETF (SPAK) is down 14% YTD versus a 5% decline for the S&P 500 over the same period.
  • The bright spot here is that inflation’s impact to the pre-merger SPACs as an arb opportunity could be less meaningful.

“We expect spreads to stay wide in the new issue market. Yield-to-liquidation spreads have gone up”  

David Sherman, Founder and Portfolio Manager of CrossingBridge Advisors Pre-Merger SPAC ETF (NASDAQ:SPC)

Recent Analysis

Daily SPAC Update – July 19, 2024

AIBAF DeSPACs to PSIG. GAMC Sets Deal Vote. NOVV and BYNO Extension Votes Set. BlueRiver Acquisition  (BLUAF) Suspends Trading. CCIV Vote Moves to August.

Daily SPAC Update – July 17, 2024

ZLS – Zalatoris II Updates Trust Ahead of Vote. AFAR Extension Approved w/ 2.7M Redemptions. AVHI – Achari Ventures Extends. MACI Separate Trading Today. Ocean Capital Withdraws Registration.

Subscribe to Boardroom Alpha Newsletters

Subscribe to Boardroom Alpha's research to receive the latest on governance, SPACs, and people.

Disclaimer

The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Boardroom Alpha cannot guarantee its accuracy and completeness, and that of the opinions based thereon. 

This report contains opinions and is provided for informational purposes only – it does not constitute investment, legal or tax advice. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional before you make any investment.  

None of the information contained in this report constitutes, or is intended to constitute a recommendation by Boardroom Alpha of any particular security or trading strategy or a determination by BA that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.  

No representation or warranty, expressed or implied, is made on behalf of Boardroom Alpha as to the accuracy or completeness of the information contained herein. Boardroom Alpha does not accept any liability for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on all or any part of this research and any liability is expressly disclaimed.