I Knew That This Would Happen Eventually

It looks like we are about to see the first SPAC driven implosion, and BuzzFeed will be taking it on the chin as a result.

A Special Purpose Acquisition Company is a publicly traded company with lots of investor cash, but no actual business that it conducts.  Instead, it will buy a private company, and so take that private company public without any of the due diligence and reports that would ordinarily be required by regulations.

Buzzfeed's take from its IPO has just been significantly downgraded as a result of many of the SPAC investors pulling their money out:

BuzzFeed Inc. will raise roughly $16 million from its public listing, after the blank-check company it is merging with suffered a wave of investor withdrawals, according to a securities filing and people familiar with the situation.

BuzzFeed in June announced plans to go public through a merger with 890 5th Avenue Partners Inc., a special-purpose acquisition company, or SPAC. Also called a blank-check company, a SPAC raises money and lists on a stock exchange with the sole intent of merging with a private firm to take it public.

About 94% of the $287.5 million the SPAC raised has been withdrawn by investors, leaving the digital-media outlet with the remainder, according to the securities filing.

BuzzFeed also raised $150 million in convertible note financing as part of the SPAC deal.

………

The reduced cash proceeds could put pressure on BuzzFeed’s balance sheet. The company has previously said the merger would put it in position to pursue acquisitions and bring in high-quality executives. The deal is financing the acquisition of Complex Networks Inc., a digital publisher that specializes in streetwear, music and pop culture. BuzzFeed agreed to acquire HuffPost last year. BuzzFeed projected robust revenue growth when it announced the SPAC deal, saying sales would rise about 25% annually through 2024.

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SPAC mergers have exploded, in part because the company going public can make business projections that aren’t allowed in traditional initial public offerings.

Many other companies that have pursued SPAC deals have suffered high withdrawals in recent months amid a share-price slump for startups that go public this way.

Since investors in SPACs don’t know what type of deal the SPAC will do, they are allowed to withdraw their money before mergers are completed.

Since the end of July, the average SPAC has lost about 60% of its money before its deal goes through, up from roughly 25% in the first seven months of the year, data from SPAC Research show.

It should be noted that the SEC is already cracking down on this financial gimmick, because what is happening to Buzzfeed is the exception, not the rule, and the only ones who make money are the banksters.

I expect (hope?) to see some SPAC managers arrested for fraud in the not too distant future.