Spacs: what the pundits think

Founder and CEO of BuzzFeed Jonah Peretti

BuzzFeed’s Jonah Peretti

(Image credit: Bennett Raglin/Getty Images)

published 9 December 2021

The fading buzz

“Previously Wall Street’s hottest investment product”, special purpose acquisition companies (Spacs) have “plunged in popularity”, with investors withdrawing cash at ever increasing rates, said the FT. This week, it emerged that investors in the Spac taking BuzzFeed public “have pulled 94% of their money out” – signalling “scepticism over the media group’s prospects” and “underlining just how far Spacs have fallen from favour”. Many more are now either underwater, or subject to regulatory investigation. One such is Digital World Acquisition, the Spac set to merge with Donald Trump’s “non-woke” social media and entertainment start-up, Trump Media and Technology Group, which claims to have raised $1bn from “unidentified investors”. The probe could hinder the former president’s plan to raise further cash on the market.

Spacs work like “blank cheques”: they raise money from investors and list on the stock market, with the promise of finding an attractive private company to merge with. At the height of the boom, everyone who was anyone piled in, said The Economist. Between June 2020 and November 2021, 700 Spacs were created, raising $235bn. The frenzy ended in April when regulators started to grumble. “Oh my goodness, has there been a washout,” observed former Barclays chief Bob Diamond. “The days of the celebrity Spac are gone.” He hopes the next phase will involve sponsors with “proven track records”. But it’s unclear whether the Spac model has reformed enough to blow away all the froth.

Spacs certainly have their uses, said Aimee Donnellan on Reuters Breakingviews. The latest big deal in Amsterdam is a shot in the arm for a promising British drug discovery firm, BenevolentAI, providing “fresh cash” to keep its “algorithms whirring”. Amsterdam has emerged as “Europe’s Spac capital” with two-thirds of recent listings coming from blank-cheque firms, according to Bloomberg. In London, Hambro Perks has just completed the first Spac listing since the City regulator relaxed the rules to kickstart the market, raising £143.5m – “the first key test of British investors’ appetite”, said Ben Martin in The Times. The firm is now hunting for a tech company to buy. Spacs have waxed and waned, but they’re not going away.