Negotiators considering taking companies public through Special Purpose Acquisition Company (SPAC) mergers are struggling to find investors and have struck short-term deals with alternative asset managers and private equity groups, the Financial Times reported Monday, March 7.
The deals showed the difficulties faced by SPACs – publicly traded shell companies that seek private companies to buy and take public – to complete the mergers, after their popularity fell after the initial boom at the start of the pandemic. .
SPACs have been subject to increased regulatory scrutiny, as well as scandals and poor performance, which have led investors to pull out.
This put potential mergers in jeopardy as SPACs struggled to meet the minimum cash requirements needed to complete the deal.
Thus, companies wishing to go public are looking for other sources, at very advantageous conditions for new investors. Atalaya Capital Management, an alternative asset manager, is one of them, along with Apollo, a private equity group. SPACs have turned to them for what is called buyout capital, in which new investors agree to buy shares from investors seeking to withdraw their money.
“It’s a sign of desperation. This is problematic because it is quite difficult for anyone except fairly sophisticated investors to understand what is going on in these transactions and to see how much of a deal is being offered to selected investors,” said Michael Ohlrogge, professor at New York University School of Law studying SPACs.
Read more: Data: Half of SPAC startups with less than $10 million in revenue failed to meet 2021 financial goals
In late February, PYMNTS reported that several startups had seen diminishing returns from what was expected.
Dozens of them that had gone public in the stock market frenzy spurred by the chaos of the pandemic have now been struggling, with nearly half of them as of 2021 with less than $10 million in annual revenue that fail or should fail.