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#investmentbubbles

SPACs Go from Red Hot to Ice Cold

By:  Robert Verdugo, CMFC®, APMA®, Financial Analyst

What a difference a year makes. Last spring, you couldn’t avoid the topic SPACs (Special Purpose Acquisition Companies) in any financial publication you laid your eyes on. Now the SPAC conversation is still prevalent, but for opposite reasons. Investor sentiment has dissipated dramatically in recent months as the prospect of higher inflation and the expected rise in the Federal Funds rate seemingly turned a once booming investment strategy on its head. The SPAC Index, pictured below, recently reached fresh 52-week lows.

Source: SPAC Index via Bloomberg

According to Bailey Lipschultz, with Bloomberg News, “At least six mergers with special-purpose acquisition companies have been canceled this year, on pace for a record number of nixed deals in a single quarter. At least 22 have been spiked since the middle of 2021, according to data compiled by Chicago-based SPAC Research, which tracks the industry. That compares with 26 tie-ups that were called off in the more than five years prior, the data show.”1

The post pandemic market has given us many surprises, but bubbles still burst just the same. As Edwin Lefevre once said “The big money in booms is always made first by the public – on paper. And it remains on paper”.2

Sources:

  1. https://www.bloomberg.com/news/articles/2022-02-14/spac-mergers-are-falling-apart-at-rapid-pace-in-sign-of-fatigue
  2. “Reminiscences of a Stock Operator”. Book by Edwin Lefèvre. Chapter XXI, p. 257, 1923.

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