Over the past year, Special Acquisition Companies (SPACs) have gained momentum. Although the momentums seem to cool off, one central aspect for investors looking for winners of these blank-check companies is steady outperformance.
SPACs with experienced sponsor operators outperforming
According to Wolfe Research, the presence or lack of sponsor-related experience is a vital aspect in the stock performance of SPACs after merging. Notably, SPACs having “experience operators” defined as a blank check sponsor’s chair or CEO having direct industry operating experience in the acquired company produced massive returns.
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The research firm said that shares of acquisitions with experienced CEOs beat those without by a large margin after several months or a year after the mergers close. SPACs with competent operators returned 73% on average after a year, whereas those without experienced industry leadership lost 14% on average, according to the business.
In a research note, Wolfe Research’s Chris Senyek said:
“We found the strongest differentiating characteristic of De-SPAC stock performance was the presence / absence of an experienced operator.”
With increasing regulatory pressure and supply reaching unsustainable levels, the SPAC market has slowed down after record Q1. According to Barclays’ data, in Q2 2021, SPAC issuance dropped 87% to around $13 billion. However, the current pending SPAC IPOs pipeline is still high at $71 billion.
SPACs offer private companies a way to go public
SPACs raise money in IPOs and use the cash in merging with a private company to take it public within two years. Unfortunately, with mounting pressure in a highly volatile market, some of these SPACs have had to go for less ideal targets, and sometimes they do away with their blueprint. For instance, CNBC has previously reported that a cannabis SPAC had to complete a deal with a space firm while a leisure blank check company merged with a biotech company.
Last year the SPAC space exploded and attracted several celebrities to dive in. However, the US Securities and Exchange Commission had warned against deals fronted by celebrities urging investors to be keen before jumping on the bandwagon.
Surprisingly, the majority of SPACs have shed their 2021 rally with the market cooling off. For instance, the CNBC SPAC Post Deal Index, comprising the largest SPACs that already have confirmed a target or those that have completed a merger, is flat in the past 12 months.
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