Axios Pro Rata: They're still SPACing

Plus: The delayed SPACs | Saturday, April 23, 2022

Open in app View in browser   Presented By Latham & Watkins   Axios Pro Rata By Kia Kokalitcheva · Apr 23, 2022 Aaannddd we're back! As it's been a while, this week we're checking in on SPAC-land. 🚨 Reminder: Feel free to send me tips or comments by replying to this email or on Twitter @imkialikethecar. Today's newsletter is 950 words, a 3.5-minute read.     1 big thing: The SPAC music hasn't quite stopped Illustration: Sarah Grillo/Axios   Despite the dramatic deflation of SPAC-mania in recent months — and a downturn in the broader market — some SPACs are still announcing new mergers. Why it matters: The SPAC category's demise has been heavily predicted by skeptics of the model, but it hasn't quite happened yet. By the numbers: Between Jan. 1 and April 18 of this year, 38 mergers with U.S.-listed SPACs were announced, plus three more globally, per Dealogic data. Meanwhile, a whopping 609 U.S.-listed SPACs are still searching for acquisition targets as of April 22 — up from 551 at the end of 2021. Between the lines: This year's deals have been smaller in general, says SPAC Research founder Ben Kwasnick. The shrinking deal sizes are in part because of difficulty obtaining PIPE financing, since it's harder to get large deals done with less committed capital. Investors have also pulled back from accepting sky-high tech company valuations based on aggressive growth projections. And shrinking trading multiples for public comps are affecting merger values, according to a recent SPAC Research note. Yes, but: Large deals haven't completely vanished. 14 of the 38 deals announced globally between Jan. 1 and April 18 had valuations of at least $1 billion — though that's just a fraction of the number announced in roughly the same period a year ago, per SPAC Research data. Large deals this year have included targets such as European lottery company Allwyn Entertainment, French music streamer Deezer, quantum computing company D-Wave and Japanese crypto exchange Coincheck. Flashback: Starting last summer, the pandemic's SPAC boom began to simmer down. Redemptions went up, and SPAC sponsors soon began to rely heavily on anchor investors, offering numerous concessions to lure them into deals. Even so, by late last year there was an uptick in merger cancellations amid dragging stock performance for the entire class. And then came the SEC's vote to move forward on a proposal that would, among other things, remove SPACs' hallmark "safe harbor" protections that allow targets to provide more forward-looking projections than traditional IPOs do. The safe harbor has received backlash for allowing companies to run fast and loose with growth forecasts that may or may not be tethered to reality. The bottom line: SPACs appear to have returned to being a more niche investment vehicle.     2. What they're saying... Illustration: Sarah Grillo/Axios   There's still optimism about the staying power of SPACs as an asset class, among sponsors and targets who see the vehicles as useful for raising new funds. What they're saying: "Telecommunications, in particular, is more capital intensive than the regular average bear software company," Chaitanya "Chet" Kanojia, CEO of wireless internet service provider Starry, told Axios' Kerry Flynn recently. "It gets to a stage where the public markets are the right place for you." Others, like French music streaming company Deezer, also see merging with a SPAC as a way to tap into much-needed new capital in a quest to turn a profit. Meanwhile: Even new SPAC sponsors still believe there are high-quality targets in the market to invest in. Former U.S. PlayStation chief Jack Tretton, who recently raised a SPAC and decided to pull forward the vehicle's deadline to find a target, told Axios' Stephen Totilo: "The fact that we were willing to go to 15 months and sweeten the pot for investors I think was an indication that we felt very confident that there were a number of tremendous targets out there that we could land." The bottom line: Not everyone has soured on SPACs.     3. The other side... Illustration: Annelise Capossela/Axios   At the same time, a number of announced SPAC mergers have been delayed, including: Forbes Media: The publisher's deadline to complete its merger with Magnum Opus Acquisition Corp. has been extended (again) to May 31 despite the company's assurance earlier this year that it planned to meet its initial Q1 deadline. As Axios has previously reported, some members of the company's leadership team and board have been more keen on a private takeover offer than the SPAC route. Circle: The stablecoin issuer, which initially announced its merger last summer with Concord Acquisition Corp., doubled its valuation to $9 billion in February despite not meeting its original 2021 revenue projections. The updated valuation also reset the clock to close the deal, giving it more time than the previous April 3 deadline. Bullish: The Peter Thiel-backed crypto exchange pushed back the close of its $9 billion merger with Far Peak Acquisition Corp. to Q2 amid delayed approval from the SEC. It originally intended to begin trading at the end of last year or in the first quarter. Better.com: The embattled Softbank-backed mortgage company delayed in December the close of its $7.7 billion merger with Aurora Acquisition Corp. just days after laying off 9% of its workforce (via a mass Zoom meeting). While the parties said the delay was to get regulatory approval for new deal terms, it was hard to ignore the timing of the controversial layoffs. eToro: The stock trading company delayed its merger with FinTech Acquisition Corp. V until June after struggling to submit certain documents to the SEC. Its partner SPAC also slashed its valuation from $10.4 billion to $8.8 billion amid a market downturn.     A message from Latham & Watkins Incorporating a startup? Here's where to start     Latham has helped hundreds of founders incorporate their businesses. Now, we've created a free tool that lets you do it yourself — LathamDrive's Document Generator. Keep moving forward — check out LathamDrive's Document Generator today.     📚 Due Diligence Citi to Pause New SPAC Issuance as SEC Signals Crackdown (Bloomberg) A court battle that has raised concerns about SPACs (Financial Times) SPACs go global (Axios)     🧩 Trivia The SPAC music may not have entirely stopped, but it has for some folks. Question: Which sponsor pulled four planned SPACs late this week? (Answer at the bottom.)     🧮 Final Numbers Data: Renaissance Capital; Chart: Thomas Oide/Axios     A message from Latham & Watkins For a founder, knowledge can be the best protection     Know a Full Ratchet from a Weighted Average in an Anti-Dilution Protection? The difference could mean control of your company. Latham's Book of Jargon® app explains hundreds of terms for founders and funders. Download the Emerging Companies Book of Jargon® and browse our 14-book library.   🙏 Thanks for reading! See you on Monday for Pro Rata's weekday programming, and please ask your friends, colleagues and SPAC targets to sign up. Trivia answer: Navigation Capital Partners pulled its Navigation Capital Acquisition VI, VII, VIII and IX, per Bloomberg. Go deeper with Axios Pro: Deals, featuring hyper-relevant news and analysis across PE, VC and M&A.   Axios thanks our partners for supporting our newsletters. 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