SPAC boom fizzles, investors cash out on big names

Several companies, including Grab Holdings and BuzzFeed, that merged with shell entities to go public have seen their shares tumble, as investors pull the rug out from under the stocks hyped in Wall Street’s frenzied blank-check deals this year.

Shares of BuzzFeed, which merged with blank-check firm 890 5th Avenue Partners, have plunged 40 per cent since their debut on December 6. The digital media firm raised $16 million out of $288 million in the SPAC’s trust as 94 per cent of its investors took their money back.

Grab Holdings, southeast Asia’s biggest ride-hailing and delivery firm, has lost half its market capitalisation since its Nasdaq debut on December 2 following the company’s record $40 billion merger with a blank-check firm.

“A lot of investors are now looking more toward companies that have proven track records, that have demonstrated history of delivering profit,” said Edward Moya, senior market analyst at Oanda. “The frenzy that has been driving some of the momentum in SPACs that we saw earlier in the year has clearly gone away.” Special purpose acquisition companies are shell companies that raise money in an initial public offering (IPO) and put it in a trust for the purpose of merging with a private firm and taking it public.

Since investors are unaware of the target company ahead of the IPO, SPACs often grant them the right to redeem their initial investment as an incentive to put their money in the trust.

The average redemption rate has more than doubled to 58 per cent in the fourth quarter from a year earlier, data from Dealogic showed, as many companies fall short of investors’ lofty expectations.

In the case of Zoom Video Communications-backed event management software company Cvent, nearly 85 per cent of investors redeemed their shares for cash two days before its debut, its filing showed.

Vacation rental management company Vacasa received gross proceeds of about $340 million from its debut on December 8, $145 million below its expectations dueto redemption.

Vacasa's business is well capitalised through the SPAC deal as it retained greater than 50 per cent of cash in the company’s trust account, CFO Jamie Cohen told Reuters.

“SPACS got crazy in February and investors started looking at them like meme stocks. Then Lucid crashed and the SEC starting issuing negative comments and SPACs fell out of favour,” said Matthew Tuttle, chief executive officer of Tuttle Capital Management.