The fourth quarter SPAC outlook points toward a flurry of activity. Those fortunate enough to find merger partners may have success, while others will face disappointment as deadlines loom and qualified companies remain scarce.
Preliminary analysis indicates that the SPAC market is still on a downward trajectory. The continued decline is likely to lead to a new trendline of around one hundred per quarter. Considering that the year began with nearly three times that amount, the trending activity could mean a significant shift in the market.
SPAC Deal Volume This Year
First quarter 2021 boasted 317 SPAC IPO completions. Multiple industries showed promise of rebounding and several newcomers entered the scene. SPAC activity was ripe with opportunity. Beyond the first quarter, activity continued to dwindle and the market mimicked the challenges of the natural laws governing supply and demand. General investors are still showing great interest in the opportunities to invest at the IPO stage and are not obviously dissuaded by the decline.
As the results trickle in for the final quarter, there is no expectation that SPAC investments will be on par to the 2020 tally of more than $50 billion. Despite the sharp decline in activity, the SPAC IPO future still holds hope. In addition to the natural ebb and flow of investment opportunity, SPAC investments were also hindered by regulatory oversight. The new warrant valuation process slowed investment groups during their search for viable new companies.
Popular SPAC Industries
The technology, media, and telecommunications sector contained the most SPAC activity, 34 percent to be exact, at the end of quarter three. Healthcare and Life Sciences followed with about 13 percent of SPACs looking for target companies. Nearly 70 percent of the SPACs looking for target companies have less than eighteen months to finalize their deals.
While the sectors, investors, and activity levels naturally ebb and flow, the looming deadlines are a fairly new statistic. Mergers and target companies are usually readily available for SPACs in the marketplace. For the sake of perspective, consider that in 2020 SPACs made up more than half of the IPO activity in the overall market.
Regulation and Speculation
Investors choose SPACs as an investment vehicle because they offer flexibility and a relatively active management structure. When the Securities and Exchange Commission (SEC) recently announced the warrant valuation process changes, SPAC activity slowed but did not lose pace for long. Additional reporting requirements are in place and can be independently verified. Fourth quarter findings and subsequent research will determine whether the new regulations drastically impacted activity.
At Appraisal Economics, we offer complete and reliable valuations for SPACs. Whether it be warrants or fairness opinions, trust us to provide a fully disclosed and comprehensive report.