Redemption rates are rising on investments in Special Purpose Acquisition Companies (SPACs), a sign that publishing startups in this manner has peaked, the Financial Times reported on Monday (September 27th).
In the third quarter of 2021, the buyback rate was 52.4%, compared to 21.9% in the second quarter and 10% in the first quarter, according to data from Dealogic. The increase in buybacks could indicate that the investment risk is relative to that of traditional initial public offerings (IPOs). The PSPC agreements had a reputation for being more stable.
See also: FinTech SPAC activity intensifies
The peak in the first quarter was part of a frenzy that saw $ 100 billion of PSPC – also known as blank checks or shell companies – listed on the stock exchange.
“We’re never going to see the first quarter again, ever,” an anonymous Wall Street banker told FT. âThe first quarter of this year will be the 2000 dot-com bubble for PSPCs. There was a unique confluence of factors that led to this senseless risk-seeking behavior, particularly at the retail investor level. “
A PSPC is raising funds by going public in an IPO on the assumption that it will merge with a startup within two years. If PSPC fails to merge with another company, it must return the funds to investors. As of March, more than 370 PSPCs with capital of more than $ 118 billion were actively seeking a match, according to data from PSPC Research.
See: PSPC shares have fallen 25% since February
âThere is an argument that says these SPACs don’t do what they were created to do. There isn’t much cash left in these vehicles at the time of acquisition, âan anonymous senior capital markets official told FT. âAs a company that sells to PSPC, you get a very different deal than you thought you signed up for. “
Large redemptions can cause a trade to fail, as many have a minimum cash flow threshold that must be met for a trade to close.
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âHigh buybacks mean there isn’t enough market to step in and buy these buyouts,â said Michael Klausner, a Stanford Law School professor who studies PSPC. âIt’s a bad sign but not surprising. It would be a typical pre-bubble.