The end of free money means the end of SPACs in the United States

The end of free money means the end of SPACs in the United States

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A trader works on the floor of the New York Stock Exchange at the closing bell, January 14, 2022.

The Fed gave, and the Fed took back. In this period of the financial bubble bursting on Wall Street, the observation applies perfectly to SPACs, the special purpose acquisition companies, which continue to collapse on the stock market with the end of free money registered by the US central bank. These companies were empty shells, listed on the stock market, and were supposed to buy companies with promising potential with the money entrusted to them by investors. These SPACs were called “blank checks” because investors did not know which company would be purchased.

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The maneuver had the advantage of facilitating the target’s IPO, bypassing the slow and protective course of traditional IPOs, and of collecting a profit on the stock more quickly. Unfortunately, not everything went as planned, with the bursting of the SPAC bubble in January 2021. The shares, which were worth 10 dollars (9.30 euros), soared… before collapsing. This is the case of the SoFi financial loan company, which rose from $10 to $28 in January 2021, and is only worth $4.80.

Same route for the company Hims, which allows you to order Viagra online, whose value fell from 25 to 3.50 dollars after touching a minimum of 2.72 dollars in early May. We can also cite WeWork, a shared office company, which went public in the fall of 2021, and lost more than 30% of its value, while the media group Buzzfeed fell by 55%. The SPAK ETF, the mutual fund that buys all the SPACs in the United States, has seen its price drop by three since its peak in January 2021. The savers who jumped on the bandwagon, during the IPO, lost the T-shirt.

They all open their umbrellas.

From now on, it is the promoters of the 600 SPACs looking for investors who risk losing the 5 to 10 million dollars in commissions that they are supposed to earn in this type of operation. Explanation: They generally have two years to invest the funds entrusted to them, otherwise they must pay them back. The maximum amounts were collected at the beginning of 2021: according to the Wall Street Journal, 280 vehicles of this type must invest before the first quarter of 2023.

Except it’s a disaster: Stock market valuations are plummeting, unlisted companies don’t want to sell and to save their commission, and SPAC managers risk rushing into shoddy companies. These companies are indeed paying less today, but they have much less promising prospects, with the interruption of production chains, inflation and labor shortages. In addition, a parallel market, that of the classic IPOs, is almost frozen, after the fireworks of early 2021.

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