On Wall Street, the much-touted trend of special purpose acquisition companies (SPACs) might be on the way out, Reuters reported, as first-day trading pops are fading.
Share price rises were common earlier this year, but they have been falling as a broad selloff has been happening among companies that have gone public via SPAC, according to Reuters.
Fourteen of the 15 SPACs that began trading this week have closed at less than their original initial public offering (IPO) prices of $10 per unit on the first day of trading. Several other deals are falling short, too, Reuters reported, citing statistics.
SPACs are blank-check companies set up solely to help other companies go public without going through the usual IPO process.
Traditionally, SPACs have traded around $10 until they announce a merger, but enthusiasm in recent months has led to many being bid up due to hunches that the SPAC will end up being bought out by a company that will be received well by the market, according to Reuters.
This month has seen the biggest gains go to Supernova Partners Acquisition Co. II with a 3.5 percent gain. That’s compared to a 32.5 percent high in January for Altimeter Growth Corp. 2 and 24.9 percent in February for CM Life Sciences II, Reuters reported.
The lessening excitement comes after SPACs surpassed the $83.4 billion through IPOs that the sector made for all of last year. Reuters reported that the shaky presentation of new deals has the potential to derail the pace of new IPOs, as investors can buy existing SPACs below $10 instead of purchasing new ones.
Additionally, investors have voiced concerns over market reactions to SPACs, with some companies like Thoma Bravo Advantage seeing their shares drop after confirming merger targets, according to Reuters.
SPACs have seen celebrity backings boost their stock though. Jay-Z, Shaquille O’Neal and Ciara Wilson are associated with them.
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