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ANALYSIS: What If Half the SPACs Don’t De-SPAC?

May 7, 2021, 9:00 AM

With only 38 SPAC IPOs announced last month, headlines about a bursting—or already-burst—SPAC market bubble abound. But for M&A dealmakers, the SPAC work is far from over.

More than 400 trading U.S. SPACs are still searching for private companies to take public. Even if half of these SPACs fail to make it to the finish line by merging with a private company, the M&A market can still reasonably count at least a couple hundred “de-SPAC” deals in the pipeline.

Of all currently trading U.S. special purpose acquisition companies that went public on or after Jan. 1, 2020, 423 SPACs have yet to enter into a definitive merger agreement to take over a private target, and have yet to be associated with any pre-agreement deal announcements (i.e., rumored or proposed deals). A total of 92 U.S. SPACs have entered into definitive de-SPAC transaction agreements that are currently pending, and 19 are associated with rumored or proposed deals.

As with SPAC IPOs, April was slow for these de-SPACing deals, through which a public shell company executes a merger with a private company, thereby taking it public and providing the opportunity for investor returns. Only 13 such deals that are currently pending or completed were announced last month, compared with 20 in March and 37 in February.

Looking farther back, an aggregate $995.8 billion in pending and completed M&A takeover deals involving at least one U.S. party have been announced in the past six months, of which $83.6 billion (8%) was composed of de-SPAC M&A deals. The average deal size for these currently pending or completed SPAC deals announced between Nov. 1, 2020, and April 31, 2021, was $869 million.

Given the sheer number of active SPACs, heightened scrutiny, clogs in the SPAC ecosystem, and the bumps (and litigation) that SPACs can face on the way to getting their mergers closed, it’s not likely that all of the 400-plus U.S. SPACs that have yet to find a private target will be successful in completing a de-SPAC deal. In fact, last month, one SPAC expert told Bloomberg he foresees a big rise in SPAC liquidations—which happen when SPACs don’t complete an M&A deal in time and have to return shareholders’ investments—up to an estimated 50% liquidation rate from the 15% liquidation rate seen in years prior to the recent SPAC boom.

Based on the average size of de-SPAC deals over the past six months, and the total number of SPACs seeking takeover targets—even assuming a scenario in which half will be liquidated—the potential pipeline of about 200 SPAC M&A deals could still have an aggregate value upwards of $174 billion. And that would be enough to keep SPAC M&A lawyers busy.

With assistance from Nageen Qasim, Bloomberg L.P.

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