Judge SPACs on the skin in the game of their backers

THE US SPAC (special purpose acquisition company) market is cooling off fast amid heightened regulatory scrutiny and an increasingly discerning crowd. But poor-quality SPACs may yet become a mainstay, and investors should pay closer attention to avoid being burnt.

Sixty-one new SPACs raised nearly US$12 billion in the second quarter, data from CB Insights showed. The number of SPACs created was an 80 per cent drop from the 298 SPACs formed during the first quarter of 2021, but was more in line with historical issuances seen pre-SPAC attack. (see graph)

A SPAC is a listed shell whose sole purpose is finding a private company to buy. The SPAC raises money for such an acquisition by issuing shares, typically with attached warrants that can help to boost returns for initial investors.