Once hot PSPC investments are coming back to earth – the Mercury

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NEW YORK (AP) – The spectacular run of the investment phenomenon known as SPAC, once the hottest thing on Wall Street, has fizzled out so much that many have been relegated to the bargain bin.

These specialized acquiring companies are often called “blank check companies” because they have no other business than finding private companies to buy. They do so with cash provided by investors who have subscribed to the PSPC’s initial public offering.

PSPCs exploded in popularity last year, and the fury peaked in early 2021, when they averaged $ 6 billion a week. They offered companies like DraftKings, SoFi, and 23andMe a faster way to get their shares on the stock exchange: by merging with a SPAC and taking its place in the market rather than going through a traditional IPO. And PSPC has offered investors a way to enter these exciting and potentially high growth companies.

The industry got so hot that in order to stand out, PSPCs began to tout their famous investors and advisers, such as Alex Rodriguez of baseball and Sammy Hagar of music. It got crazy enough that the Securities and Exchange Commission issued a warning in March that investors don’t invest in a PSPC “just because someone celebrating is sponsoring or investing in it or saying it’s a good one. investment”.

Since the spring, however, the industry’s momentum has dropped sharply. Patience may be the key for investors hoping to find good business in the PSPC world now, a sharp turnaround from the daily frenzy that characterized them earlier this year.

Concerns over increased regulatory oversight and periods of rising interest rates have helped calm high-growth sectors of the market. PSPCs also drew the attention of critics who said they were examples of a dangerous bubble inflating in the stock market as investors chased down the next hot thing.

As a result, only seven PSPCs went public in the last month, raising just $ 1.3 billion. That’s down from February’s 146, which raised $ 45.8 billion, according to FactSet.

Not only are fewer and fewer PSPCs going public with IPOs, but those already in the market and still looking for targets have seen their stock prices drop. Many are trading below $ 10. This is a key threshold because the cash that SPACs raise on their IPOs is in trust accounts that earn interest. If PSPC can’t find a company to buy within the timeframe detailed in its IPO, that money is returned to investors, often just under $ 10 per share.

More than 90% of active SPACs were recently trading below face value, according to Goldman Sachs.

This means that the typical PSPC, always on the hunt for a target, recently offered a 2.7% return if an investor bought it and just waited for the payback, according to Goldman Sachs strategists. Of course, that could mean a 17 month wait for the typical PSPC.

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