More and more companies are canceling high-level agreements to make them public

Experts have long doubted the sustainability of the pandemic-era SPAC boom, during which hundreds of companies used blank check vehicles to raise tens of billions of dollars in IPOs . The frenzy has died down over the past year, as many companies have seen their stocks plummet after their IPOs. But now a new trend is emerging: an increasing number of SPAC deals are collapsing before the listed shell merges with its acquisition target.

The rush of cancellations at the end of 2021 includes the planned merger of Fertitta Entertainment – ​​the parent company of Golden Nugget casinos, Landry’s restaurant and other assets owned by billionaire Tilman Fertitta – with the blank check company Fast Acquisition Corp. in recent weeks, impending mergers involving BBQGuys, the online grill retailer backed by NFL giants Eli and Payton Manning; fintech back-office company Apex Fintech; and the ServiceMax cloud software platform.

A total of some 17 SPAC mergers, worth a collective $37.2 billion, were terminated in the last six months of 2021, compared to four worth $720 million in the previous six months. , according to the data provided to Forbes by financial data company Dealogic. Only seven SPAC deals have been terminated in 2020. Many more have been postponed until next year, a sign that they could also fail, says Jay Ritter, a professor at the University of Florida who specializes in IPOs. . Among the companies whose mergers are in the works are Israeli trading platform eToro and short-term rental startup Sonder, which lowered its valuation estimate in November from $2.2 billion to $1.925 billion. (Both companies say Forbes they plan to complete their public offerings.)

SPACs became very popular at the start of the Covid-19 pandemic as a relatively quick and streamlined alternative to traditional IPOs. The number of private companies choosing this option increased nearly tenfold between 2019 and 2021, when there were more than 600 SPAC IPOs, according to a tracker run by research firm SPAC Analytics. (Forbes Media announced plans to go public via PSPC in August).

Enthusiasm for these companies initially skyrocketed – peaking in February 2021 at a monthly record of $32 billion raised by 90 SPACs – but has since declined sharply. Investment bank Renaissance Capital noted in its annual review that 61% of the $144 billion raised by SPACs this year was accrued in the first quarter.

Experts attribute the rise in PSPC cancellations to an industry heading towards breakeven. “The two potential PIPE [private investment in public equity] investors as well as public market investors say that historically, SPAC returns after mergers have lagged the market,” says Ritter. Because institutional funding is harder to come by and public investors are ruthlessly dumping shares (shareholder buyout rates have risen from 20% to 50% in 2021), some SPACs can’t get enough money to meet the requirements of their transactions.

Then there’s increased regulatory scrutiny from the Securities and Exchanges Commission, which continues to threaten tougher rules for blank check companies. Mike Stegemoller, a banking and finance professor at Baylor University who has studied SPACs, says the SEC is taking longer to process mergers, undermining one of the main reasons private companies sue them. in the first place. Indeed, two companies declared Forbes that delays at the agency played a part in the end of their SPAC plans. The SEC did not respond to a request for comment.

These changing market conditions have shifted the power to private companies, which are increasingly in demand. According to PSPC analytics, more than 570 PSPCs are currently looking for “target companies” to make public. “To put it simply, there’s too much money chasing after business,” Ritter says. If conditions change or an operating company’s situation improves, target companies may now have better options if they want to exit.

Stegemoller predicts that canceled IPOs will become a more powerful symptom of a market in transition. “I think what we’ll see is this bifurcation in the market where you see high quality SPAC sponsors and low quality SPAC sponsors,” he says. “And I think SPAC IPOs going forward will be of higher quality.”

Here are the high-profile SPAC mergers called off in recent weeks:

_{Luminous machines}

California-based software and robotics company Bright Machines’ SPAC merger, scheduled for January 2022, was completed on December 13. Bright Machines announced plans in May to merge with Cayman Islands-based blank check company SCVX in a deal valued at $1.6 billion. The companies cited “market conditions” as a reason to cancel the deal and did not respond to follow-up questions from Forbes.

_{Fertitta Entertainment}

Parent company of the Golden Nugget and blank check company Fast Acquisition Corp. announced Dec. 10 that they have reached a mutual agreement to end their $8.6 billion merger agreement and provide shareholders with up to $33 million in upfront and deferred payments. A source close to Fertitta Entertainment said Forbes that founder Tilman Fertitta had second thoughts as the transaction took “an inordinately long time” to go through the SEC and ultimately decided it was “better to remain a 100% privately owned company”. FAST initially rejected Fertitta’s request to withdraw from the deal, which was reached in February, arguing that the company had caused delays by not providing financial statements.

^ServiceMax

ServiceMax, a vendor of cloud-based software for field service workers, was to merge with Pathfinder Acquisition Corp. before the deal was canceled on December 6. The merger first announced in July valued ServiceMax at around $1.4 billion. In what they described as a “mutual decision”, the two companies cited “adverse market conditions” and said they would not pay additional termination fees. Neither company responded to requests for comment from Forbes.

^{Apex Fintech Solutions}

The merger of Apex Fintech Solutions with Northern Star Investment Corp. II, a deal announced in February and valued at around $4.7 billion, was declared dead on December 1. despite all efforts. A spokesperson for Apex, which powers commerce and technology for mobile trading platforms and online banks, mentioned Forbes to the SEC filing and noted that the company is doing well financially. (Apex Fintech was founded by longtime trader and entrepreneur Jenny Just.)

^{Valo Health}

Boston-based biotech company Valo Health and billionaire-backed Khosla Ventures Acquisition Co. have pulled out of their planned November 15 merger. The deal was to value three-year-old Valo Health, which uses artificial intelligence and data analytics to help with drug development, at around $2.8 billion. The companies said they canceled due to “current market conditions, particularly in the area of ​​biotechnology.”

^{Wynn Interactive}

Wynn Resorts and billionaire investor Bill Foley, backed by SPAC Austerlitz Acquisition Corp., canceled plans to take the casino operator’s online betting subsidiary public on November 10. The merger, originally announced in May, valued Wynn Interactive at $3.2 billion. CEO Craig Billings said that due to “increased marketing and promotional spending in the sports betting industry”, Wynn Interactive is “directing our user acquisition efforts to a higher target. [return on investment]- targeted strategy.

^BBQGuys

The $963 million SPAC deal between high-end online grill retailer BBQGuys and Velocity Acquisition Corp. failed on November 10. The decision was described as mutual in a statement from the two companies, but related to “supply chain factors that affect BBQGuys’ business results and the timing of the transaction’s closing. According to a filing with the SEC, BBQGuys must pay Velocity Acquisition Corp. termination fees of $1.4 million.

^{MoreAI Corp.}

Autonomous driving provider PlusAI Corp. and its blank check partner Hennessy Capital Investment Corp. V walked away from their $3.3 billion merger deal on Nov. 8. crackdown on tech companies. California-based PlusAI has research and development offices in China and a partnership with one of the country’s largest truck manufacturers to develop self-driving trucks. PlusAI and Hennessy did not respond to requests for comment.