Remember SPAC? They were a way of going public while avoiding the normal reporting and due diligence normally required when a company makes an initial public offering.
The short version is that you create a company that does nothing, have people invest in it, have an initial public offering, which is easy because there is nothing to report, and then you acquire a real privately held company, and the resulting company goes public without any real review of the the real company.
It's allure is that it can make IPOs far less transparent, which the banktsters and the venture capitalists love.
For small and retail investors, at best you are paying your vigorish to the banksters, and in the worst case, they lose their money, because they do not have access to the normal reporting required by law.
It appears that, as a result a growing history of poor performance, and changes in regulation and law, SPACS are liquidating left and right:
During the boom in blank-check companies, their creators couldn’t launch them fast enough. Now they are rushing to liquidate their creations before the end of the year, marking an ugly conclusion to the SPAC frenzy.
With few prospects for deals soon and a surprise tax bill looming next year, special-purpose acquisition companies are closing at a rate of about four a day this month, nearly the same pace they were being launched when the sector peaked early last year.
Roughly 70 special-purpose acquisition companies have liquidated and returned money to investors since the start of December. That is more than the total number of SPAC liquidations in the market’s history, according to data provider SPAC Research. SPAC creators have lost more than $600 million on liquidations this month and more than $1.1 billion this year, the data show.
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Those SPACs that came late to the game are often struggling to find deals. Falling stock prices and rising interest rates have essentially frozen the market for new public listings, making it difficult for executives to meet their two-year deadline to find a deal. Many of those deadlines are coming up in the first half of next year.
A 1% federal tax on share repurchases that is part of new climate, health and spending legislation has accelerated liquidations. Winding down a SPAC and returning cash to the investors could be considered a repurchase of the company’s existing shares, which would face the buyback tax beginning next year. Some analysts project SPAC liquidation losses will top $2 billion in the coming months.
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Also called a blank-check company, a SPAC is a shell firm that raises money from investors and lists publicly with the sole purpose of merging with a private company to take it public. After regulators review the deal and it is completed, the company going public replaces the SPAC in the stock market.
Such mergers burst onto the scene as popular alternatives to traditional initial public offerings in 2020 and 2021. The boom turned into a bust during this year’s market reversal.
An exchange-traded fund tracking companies that went public this way is down more than 70% this year, dragged down by losses in startups such as sports-betting firm DraftKings Inc. and electric car maker Lucid Group Inc. Companies that went public via SPACs have performed worse than other newly public companies this year.
First, let me remind you of what I call Saroff's Rule, "If a financial transaction is complex enough to require that a news organization use a cartoon to explain it, its purpose is to deceive."
Second, this was always just an exercise in regulatory arbitrage, and regulators should have recognize that and acted accordingly.
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