Special Purpose Acquisition Companies (SPACs) was one of the most popular methods last year for a private company to go public without the requirement to go through a public offering process. However, the trend only lasted a little more than a year and started to die down in 2022.
According to statista, the number of SPACs in the United States rose from 34 in 2017 to 59 in 2019. Then the number jumped to 248 in 2020 and to 613 in 2021, seeing this as a “shortcut” to the traditional IPO and bypassing many of the necessarily strict regulatory requirements. This is an easy way, especially during the Covid-19 pandemic, as private companies are struggling to raise funds as well as the long IPO process.
However, the once well-known and popular method in 2021 was not so effective in 2022 as the number of new SPACs in the U.S. only rose 58 so far this year.
S&P SPAC Index USD, an index designed to measure the performance of a minimum of 30 common stocks of SPACs listed on U.S. exchanges, fell 11% this year.
Meanwhile, the proprietary CNBC SPAC Post Deal Index, comprising SPACs that have completed the mergers and taken their target companies public, fell nearly 50% this year, which was more than double of the S&P 500 performance in 2022 that is in a bear market.
“General market volatility in 2022 and an uncertain market environment resulting in losses in the public markets have also dampened enthusiasm for SPACs,” Wells Fargo’s senior global alternative investment strategist James Sweetman said.
Global market was in a caution mode in these past few weeks as investors assessed the aggressive rate hikes of central banks around the world could potentially lead the recovering economy into a recession later this year or next.