SPAC Companies Heave Under Billions of Goodwill Write-Downs

The recent wave of SPAC mergers led to billions in goodwill write-offs last year.

The trend — reported recently by The Wall Street Journal — illustrates the cost companies paid to close deals during a boom in special purpose acquisition company (SPAC) public listings in 2020 and 2021.

According to the report, which cites findings from financial advisory firm Kroll, some of 2022’s largest goodwill impairments were from companies that went public via SPACs, including the cryptocurrency platform Bakkt Holdings, autonomous vehicle firm Aurora Innovation, and now-bankrupt bitcoin miner Core Scientific.

Each firm in question had pretax impairments last year greater than $1 billion, the report said.

The boom in SPAC mergers fizzled following a wider downturn in the stock market, but at one time made up 70% of all initial public offerings (IPOs), the report said, raising $95 billion as private companies looked for a faster, less-scrutinized way to go public.

These companies were often small and high risk, and other acquisitions could call their value into question, Elizabeth Blankespoor, associate professor of accounting at the University of Washington, told the WSJ.

“The impairments are this big red flag that they threw a bunch of money down a hole in the ground and it didn’t work out,” she said. “The question that I would ask is: How do I know you’re not going to do the same thing with any more money you get?”

As PYMNTS wrote last week, there was a time when SPACs were the “it” way to take companies public.

Now, however, the trend has “become a well-documented bust, where two years ago the number of SPAC listings topped 600 overall; that tally has now become anemic, especially in commerce and FinTech.”

At the end of last year, as PYMNTS has reported, depending on the vertical, listings for SPACs  were in the single digits. The once popular way of coming to market — at least during the pandemic — now seems more like a relic of a forgotten time.

Meanwhile, further research by PYMNTS shows that FinTech companies that have gone public since 2020 were trading at 54% below offer price.

Lending platforms have especially fueled this recent decline, driving the PYMNTS IPO Index down almost 5% last month.

But FinTechs focused on other beleaguered sectors struggling as well. For example, mortgage facilitation platform Blend announced its stock had dropped 40% over the past five sessions.

Facing an IPO’s regulatory constraints that include SEC scrutiny, disclosures and financial auditing, FinTechs that go public now must also examine their profit strategies to appeal to investors in the wake of the recent banking crisis.

“Present revenue is being prioritized over potential growth, and so FinTechs seeking further funds may need to pivot to a more steady, sustainable model,” PYMNTS wrote. “This may be more difficult than in past years, as inflation and continued raised Fed rates place extra pressure on FinTech profitability.”