SPAC Efforts to Keep Investors Aboard May Not Be Enough to Calm Turbulence


In the land of special purpose acquisition companies (SPACs), turbulence lies ahead.

To that end, as noted by Reuters, SPACs have been embracing any number of tactics to lure investors — and to keep them there.

Churn is tough for any company to navigate — and especially so for SPACs, which need capital in hand to make deals, to identify acquisitions of private companies. SPACs raise money through initial public offerings (IPOs), and then take that money to search for deals. Very commonly, the vehicles have two years in which to make an acquisition, or they risk dissolving and giving the money raised back to investors.

In at least some cases, according to the report, the SPACs are issuing greater slices of equity (called bonus stock) to investors to keep them from redeeming their right to sell shares back to the SPAC, pre-merger. Research shows that so far, 13 SPAC deals have fallen apart thus far into 2022, far outpacing the 18 deals that fell through in all of last year.

The approaches being employed by SPACs include offering bonus stock to investors who choose not to redeem shares. Now, issuing an ever-widening pool of equity to investors does several things, chiefly, the “newer” tranches of investors’ ownership dilutes the holdings of older tranches of investors, especially the original SPAC holders. The bumpier the broader markets get, the more SPACs may have to scramble to keep things in place.

It’s Not 2021 Anymore

We’re a far cry from 2021, when IPOs came by the dozen (PYMNTS own tracking showed more than 70 listings across traditional IPOs and SPACs in the banking sector alone). This year, and as is germane to the payments space, seven firms have withdrawn their listings, with an average would-be market cap of about $425 million.

By way of example: Aperture Acquisition, which last year had filed with the Securities and Exchange Commission (SEC) to raise as much as $275 million, withdrew its IPO plans, where the newly-public company would have targeted FinTech, real estate and other related interests. No reasons were given in the withdrawal request filed with the SEC last week.

Separately, FinAccel, based in Singapore, which had been targeting a public listing that would have raised roughly $430 million, is also backing out of a public debut.

Read more: FinAccel Suspends IPO Plans Over Adverse Market

FinAccel is the parent company of buy now, pay later (BNPL) startup Kredivo, whose $2.5 billion merger deal with SPAC VPC Impact Acquisition Holdings II was announced in August. The decision to halt the IPO was mutual between FinAccel and VPC — and the blame rests with adverse market conditions.

This year is shaping up — in the midst of inflation, in the midst of war in Europe and a slowdown (in growth rates, anyway) of consumer spending — to be a bumpy year indeed.