What a year for SPACs in 2022. Coming off of a an almost euphoric two years, 2022 brought a gigantic thud to the once hot market. To be fair, SPACs were not alone as the broader equity market also suffered. However the swift change in sentiment in SPACs was nothing short of remarkable as issuance plummeted, quality deals nowhere to be found, and deSPAC performance atrocious.
We take a look at where things stand and recap the last month of 2022 below. But first some quick numbers:
- There remains 384 SPACs alive and searching for a merger target
- 151 SPACs are in the process of attempting to close official DAs
- 12 SPACs have officially filed for extensions
SPAC Liquidations and Excise Tax Clarity
A record number of SPAC liquidations came in swiftly in December with 75 SPACs calling it quits. Many of the liquidations were made EARLY by SPACs to avoid some uncertainty regarding the 1% Excise Tax set to come in 2023.
However, did sponsors make an oopsies? In late December the treasury issued guidance on the proposed rules. The initial guidance appears to exempt pure SPAC liquidations from the tax, meaning that several sponsors likely rushed too quickly to liquidate. Now, many of these sponsors likely would have liquidated regardless, but lost a little extra money on the process of the early liquidations. There are still several uncertainties and Davis Polk provides a good rundown.
The 75 in December alone are more liquidations than the entire history of the SPAC market.
The Great SPAC Maturity Wall
When we first starting talking about the “SPAC Maturity Wall” of early 2023 there were about 270 SPACs that were set to come due in the first three months of 2023. What has transpired has been extraordinary – that 270 number now stands at ~180 with a reduction of about 90 SPACs. The reduction is mostly a result of early liquidations and extensions.
SPAC Maturity Wall as of September 2022
How the Maturity Wall Stands Now
What you’ll notice is that while a lot of the carnage has already been spoken for, there are still a ton of SPACs that will need to wrap up shop or somehow find a way to close a deal. We are looking at billions more of SPAC capital returned to shareholders in Q1.
SPAC Merger Activity
December saw 21 new DAs announced, which is relatively in line with other recent months. While PIPE financing is largely still dead there were a handful of deals that were able to secure some financing.
December announced DAs inline with recent months
SPAC Redemptions Remain Sky High
Clocking in at a staggering 97%, SPAC redemptions on merger votes remains elevated at levels that ensure little of the initially raised capital remains with the deSPAC. The deals that are able to make it across the finish line often have waived minimum cash conditions and very little capital going to the targets.
SPAC IPOs – Swift Drop Off
2020 and 2021 were of course banner years for the SPAC market, with record issuance crushing previous records and average levels. 2022 saw a swift fall from that grace with issuance levels effectively falling off a cliff.
By the numbers:
- Total IPOs fell from 614 in 2021 to just 84 in 2022
- Total capital raised dropped from nearly $163B in 2021 to just over $13B this year. That also equates to an average deal size of ~$150M this year vs. ~$265M in 2021. Deals were fewer AND smaller
DeSPACs – Scarlet Letter
While broader equities have had a rough year, DeSPACs take the cake for many of the worst performers. Of the > 100 SPACs that completed transactions in the last 12 months just 10 are trading at $10 or higher.
Checking in on Serial Sponsors
Just a few sponsors remain in the green on their overall SPAC return record given some of the carnage. We’ve also seen liquidations from some of the premiere sponsors including Gores and FinTech Masala.
Without a clear catalyst for a return to “normalcy” look for more of the same in SPAC land in Q1 2023. The SPAC market is in bad need of a cleanse, a big a reset to get back to a more balanced level of activity and supply. Once the maturity glut of Q1 passes, don’t be surprised to see some more seasoned SPAC sponsors dipping their toes back into the market.
Until then, here ‘s what you can look for in the near term: