Spacs are back. What could go wrong this time?

FOLLOWING a surge in new listings by special purpose acquisition companies (Spacs), one can’t help but worry about how astonishingly short Wall Street’s memory is. These cash shells experienced a spectacular boom and bust from 2020 to 2022 as unrealistic valuations and retail investor enthusiasm for firms with little or no revenue ended in bankruptcies, shareholder litigation and financially painful liquidations. Now, this maligned asset class is off to the races again.

US Spacs have raised US$11 billion so far this year compared with less than US$2 billion in the same period a year earlier, according to data compiled by Bloomberg. They’ll try to find a firm to merge with, providing them with a shortcut to joining the public markets amid a still fairly tepid revival of traditional initial public offerings (IPOs). Spacs have accounted for almost two-thirds of US IPO volume so far this year and more than 40 per cent of proceeds, according to Spac Analytics.

For now, there aren’t as many chasing deals as during the last bull market, and retail investor speculation isn’t as extreme. Furthermore, some longstanding problems – such as publishing outlandish financial forecasts and paying elevated banker fees – show signs of improving.