Traditional IPOs outperform SPACs as blank-cheque frenzy cools

[LONDON] Special-purpose acquisition companies (SPACs) may have become the hottest must-have for business tycoons, celebrities and even athletes, but old-school initial public offerings (IPOs) have quietly outperformed them this year.

More than 330 blank-cheque firms have listed in 2021, mostly in the US, making up just over a third of global IPO activity, data compiled by Bloomberg show.

They join the 300 SPACs already floated last year, sparking concern among investors about their potential to find suitable acquisition targets and increased competition for the most attractive assets in the market.

This year's SPACs are trading up about 1.2 per cent on average on an offer-to-date basis, whereas regular IPOs have gained 36 per cent, the data show.

The strong performance for traditional listings signals there is brisk appetite for new companies coming to market, while investor sentiment toward SPACs is cooling.

Early this year, retail traders helped fuel a strong rally in SPAC stocks amid reports of several potential deals. Since reaching a peak in late February, the US IPOX SPAC index, which tracks shares in US blank-cheque companies, has tumbled 21 per cent.

"The billions of dollars that have flown into SPACs over the past year means there's much more competition for attractive takeover targets, which diminishes the prospects of lofty returns for blank-cheque firms," said Stephane Monier, chief investment officer at Lombard Odier & Cie.

This could be good news for Europe, where blank-cheque listings are only beginning to trickle in.

On Tuesday, Berlin-based venture capital firm 468 Capital announced a SPAC in Frankfurt, set to become only the seventh such deal in the region over the past 12 months.

At the same time, Europe enjoyed its biggest-ever first quarter for proceeds from regular IPOs this year.

It is too soon to truly assess SPAC performance, though there is some damping of investor euphoria, said Shaunak Mazumder, a global equities fund manager at Legal & General Investment Management. These shares are only expected to pick up after announcing a deal, he said.

Still, even the SPACs that have agreed to buy a target recently have elicited a disappointing market reaction, signalling waning investor interest.

After announcing the US$40 billion purchase of Singapore-based Grab Holdings on Tuesday, shares of Altimeter Growth rallied 10 per cent, but remain 15 per cent below a January high.

Meanwhile, some regular IPOs have dazzled the market. Crypto exchange Coinbase Global ended its first session up 31 per cent in New York on Wednesday.

Other stellar returns have come from the likes of Kuaishou Technology, this year's largest IPO globally, which has surged 125 per cent since listing in Hong Kong in February.

And in the US, online courses provider Coursera is up 56 per cent and dating app developer Bumble trades 38 per cent higher, while bootmaker Dr Martens has jumped 28 per cent since its London debut.

Now, the US regulator is also cracking down on how accounting rules apply to the warrants issued along with shares in blank-cheque offerings, new filings in their biggest market New York will be further disrupted.

"The SPAC market won't go away, it's here to say, the question is how hot does it remain," said Thorsten Pauli, head of equity capital markets for Germany, Austria and Switzerland at Bank of America.


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