(Bloomberg) -- Michael Andretti, Howard Lutnick and James Graf are among the serial sponsors returning to a US blank-check market that’s been heating up over the past six weeks, with mostly seasoned backers attracting $1.7 billion between them.
All told, another $3.3 billion could be raised in the coming months by sponsors that have filed for new offerings since early June. With former blank-checks making headlines, including an advanced nuclear systems developer backed by Sam Altman, the movie studio behind the Saw franchise, and Donald Trump’s media company, the market is increasingly confident that the battered special purpose acquisition company model has staying power.
“From the investor perspective, even if their previous de-SPACs didn’t do that great, there are benefits of having gone through the process and understanding what’s involved in operating a SPAC,” said Eric Pestrue, portfolio manager at RiverNorth Capital Management, which has invested in SPACs since 2016.
The relative increase in blank-check issuance comes from veterans. The majority of the nearly 30 SPACs to price or file for new offerings since May feature dealmakers that completed blank-check tie-ups in the past, a Bloomberg analysis shows.
“Over the past year, the hold-up hasn’t been investors — investors have been wanting to buy new SPACs,” Pestrue said.
The pricing of new initial public offerings and the formation of blank-check vehicles have both picked up amid a lukewarm market for non-SPAC US IPOs. A cadence of 10 to 15 new SPACs per quarter would strike a delicate balance, offering an alternative to traditional first-time share sales without inviting comparisons to the mania of the go-go stretch from 2020 to 2021.
Recent blank-check vehicles’ performance after completing their deals has been mixed. Shares in Oklo Inc., the startup backed by OpenAI’s chief executive officer, and Lionsgate Studios Corp., which merged with former Hollywood executive Harry Sloan’s SPAC, have slumped since going public, whereas Trump Media & Technology Group Corp. has held its position among top-performing ex-SPACs and minted paper fortunes for a range of insiders.
“You’ll continue to see serial issuers be the majority of the capital out there and I think it’s because they have attributes that work well for the structure,” said Don Duffy, president of ICR. “They’ve done deals before, they have deal flow and they tend to have more capital.”
Despite the high-profile debuts that have garnered the industry’s attention, and boosters insisting that the IPO market’s below-average activity should be bullish for blank-check vehicles, roughly half of the nearly 50 companies to complete a US SPAC merger this year have lost more than 80% of their value.
A key issue has been the still-high rates of redemptions, when investors return their shares to the SPAC in exchange for money held in trust, which depletes the amount available for a merger. This year’s average redemption rate sits above 90%, SPAC Research data analyzed by Bloombeg show, extending a trend that first started causing fractures in early 2021.
The resumption of US SPAC offerings has propped up IPO activity for banks that helped fuel the pandemic-era mania. Cantor Fitzgerald is credited with six deals that brought in $1.5 billion this year, SPAC Research data show, which has helped it jump into the top spot in Bloomberg’s league tables for US IPO underwriting.
With roughly 100 SPACs looking for targets, it may prove a far better time to strike deals than when the industry was in a bubble.
“There was a period of time in 2021 and 2022 where there were more SPACs than there were private businesses that really should’ve been public, and that led to not a lot of deals getting done,” said Joe Voboril, a partner at 1789 Capital and finance chief for Colombier Acquisition Corp. II. “The pendulum has almost fully swung in the other direction.”
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