The SPAC winter is coming. Redemption rates are on the rise. Higher redemption rates mean that investors are skeptical of the market and the deals — choosing to pull their money instead of risking losses if the stock price dives.
In July, the majority of SPAC deals saw redemption rates north of 50%. About a quarter of them had redemption rates of 80% or above. That’s in sharp contrast with the period between October 2020 and March 2021, when most had 0% redemptions.
SPACs were seen as sidestepping the rigor and regulation of a traditional public offering, with features unfavorable to small investors. Popular Wall Street-ers like Bill Ackman, Michael Klein and Tidjane Thiam refashioned themselves into SPAC entrepreneurs. SPACs became so fashionable that even Shaq, JLo and Serena Williams got in on the action.
New regulatory scrutiny and high-profile blowups have revived longstanding concerns about SPACs. Critics continue to argue that the terms of most SPAC deals are bad for ordinary investors and investors are suing SPACs in rising numbers.
Short Squeez Takeaway: While the SPAC winter might be coming, don't expect SPAC deal activity to slow down. There are still hundreds of blank-check firms on the hunt for merger targets (439 to be exact, with $130+ billion in the bank). SPAC mergers could still find the right balance and become a routine choice for some companies to go public.