Blanking

“SPAC King” returns cash to investors in a sign that the blank-check boom is over

Thursday, September 22, 2022 by Robinhood Snacks |
One SPAC, two SPAC… (Brian Ach/Getty Images)

One SPAC, two SPAC… (Brian Ach/Getty Images)

Heavy is the head… that wears the SPAC crown. “SPAC King” Chamath Palihapitiya said he’s shuttering two special-purpose acquisition companies worth a combined $1.6B. Refresher: SPACs (aka: blank-check companies) are investment firms that IPO for the sole purpose of merging with real private companies to take them public (think: a more frictionless path to listing). But Palihapitiya’s recent SPACs couldn’t find merger partners by their two-year deadline:

  • Time’s up: Both SPACs will now return the funds they raised from investors. Palihapitiya himself will forfeit several million dollars he spent forming them.
  • Past results… don’t guarantee future returns. He took Virgin Galactic, SoFi, Opendoor, and Clover Health public via SPAC-quisition. Their stocks boomed last year amid social-media hype but have since fallen 75%+ from their highs.
  • Uneven returns: Palihapitiya’s firm still doubled its money thanks to insider pricing. But many of the retail investors who followed his SPAC-vestments are underwater.

Blank checks → blank stares… #SPACtivity has dwindled this year as rising rates and inflation spook investors. Last year SPACs raised more than $160B; this year they’ve raised just $13B. Overall, SPACs have lost half their value this year. In July, Bill Ackman’s $4B SPAC (the largest ever) returned its money to investors after failing to find an acquisition target.

THE TAKEAWAY

Headless SPACs are running scared… Palihapitiya’s challenges are the tip of the iceberg. The clock’s ticking for the other 600 or so SPACs — which hold nearly $175B of investors’ cash — that are scrambling to find partners. But since many private companies are souring on public markets, and the SEC is thinking about tightening its SPAC rules, it’s looking more likely that many will have to return cash to investors in the coming months.