It would be nice to say that we’ll miss SPACs. But as blank-check companies fade from our view, we have to say we really won’t.
Many companies that went public via a SPAC, or special purpose acquisition company, have seen their valuations implode post-combination. The resulting public-market mess meant that regular investors, not merely the more sophisticated professional investing cohort, took a bath.
Even more, it appears that the best startups out there that may be eventual candidates for a traditional public offering did not pursue the SPAC route while it was open — we can infer this from the ever-rising number of yet-private unicorns — while some less-prepared companies rode the wave straight into a wall. This meant that the average quality of a company going out via a blank check combination was lower than we might have hoped.
The EV SPAC boom? A mess. Fintech SPAC? A mess. So on and so forth.
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This week, we saw the Circle SPAC deal die on the vine (TechCrunch originally somewhat liked the pitch; it appeared that the stablecoin-focused company was actually a good fit for a blank-check combination). The Footprint deal also came apart before it could consummate. Bloomberg noted this week that in addition to the 11 figures of SPAC deals falling to pieces yesterday, there have been nearly five dozen SPAC deals killed this year. (Surf Air called off its deal a few weeks ago, and the list goes on.)
Inside the twin cancellations making news this week, however, there is an interesting fact to note. Circle and Footprint, which come from two very different sectors — respectively stablecoins and materials science — both tried to amend their pricing on their paths to the public markets. Both repricings were not enough to get their deals done. Let’s talk about it.
Twin demise
Circle’s and Footprint’s fates are interesting on their own, but even more so when taken together.
Before falling through, the Circle-Concord tie-in saw its potential value raised to $9 billion, double the $4.5 billion target originally announced in July 2021. And yet, it isn’t pricing hubris or the crypto connection (or not only) that caused the deal to fall through.
Case in point: The Footprint SPAC originally had a $1.6 billion price tag attached to it, but lowering this number didn’t help. In September, the parties involved agreed to revise down the pro forma enterprise value to $1 billion, which didn’t prevent the merger from being canceled this week.
No matter the price at which a SPAC deal went out in recent years, there was a good chance that its value was going to be near zero once the transaction was complete. Doma? Pennies per share today. Dave? The same. BuzzFeed? Yep. Bird? Yes. It’s useful to note that $10 billion or $11 billion in potential SPAC deals died this week, but it’s perhaps more useful to recall that a greater sum of SPAC transactions did get done before promptly ripping to shreds the implied value of the newly public companies.
In a sense, it’s not entirely the fault of the companies that went public via SPACs. Sure, there were U.S. Securities and Exchange Commission investigations, some misstated results and whatever happened to Latch. But more often, it appears that companies got a bit too excited about going public earlier than planned, projected too rosy a future and then ran headfirst into a stock market slowdown and an economic period that, if not a recession, was certainly a downturn from 2021’s crazed daze.
Of course, a lot of companies got their pricing wrong; everyone got pricing wrong in 2021, from early-stage startup valuations to the value of the biggest tech companies on Earth. The pain is just more acute in post-SPAC companies as they, in some cases, offloaded shares from insiders to regulars, who were then hammered as share prices fell and companies struggled just to stay public, let alone thrive.
Unsurprisingly, regulators weren’t too happy to see retail investors caught in the middle, and their worries ricocheted. Indeed, Bloomberg noted that “banks have also been quitting their roles on SPAC deals amid attempts by the SEC to make them legally liable for their work” — a reference to Chair Gary Gensler’s concerns with the blank-check approach.
TechCrunch noted in June that it appeared that the SPAC market was on life support. By August, we were mostly shouting about value destruction post-SPAC combination. Now with Circle’s deal done and Footprint’s also kaput, two companies with real, growing, nine-figure revenues are out of the running.
That means that the public-market queue is more desiccated than ever. A pity, frankly, even if we won’t miss SPACs.