Is the SPAC bubble bursting soon?

We’ve said it before, but we’ll say it again: SPACs are having another great year. SPACs are outpacing traditional IPOs 3-1, averaging 3.1 SPACS launched per day, and it is expected that the total number of SPACs going public will outweigh IPOs for the rest of the year. However, are SPACs just another phase, and will the bubble burst?

• The current average SPAC IPO size is $325.7MM in 2021. This stat compares to 2020’s SPAC IPO size average of $334.8MM.
• In just the first three months of 2021, 264 SPACs have IPOed in comparison to 248 SPACs in all of 2020.
• As of mid-February, 55 traditional IPOs raised $21.7BN in comparison to the 145 SPAC IPOs that raised more than $44.5BN. 
• About 400 SPACs are still looking for companies with which to merge, but 300 of them need to find a target this year or return the money raised to investors.

But are SPACs truly profitable? 

• Because SPACs face less scrutiny and are a fast-track to IPO, the process to IPO via SPAC takes much less time than a traditional IPO. In fact, many targeted mergers are startups that are pre-revenue but demonstrate the potential for growth. This list of startups includes businesses like EV, air taxis, fintech, sustainable energy, online payment processing, and cryptocurrency. Cryptocurrency platform eToro just announced a $10BN SPAC merger.
• However, short-selling research firm Hindenburg Research, notorious for being wary of SPACs, has called out Nikola Motor, Lordstown Motors, and Clover Health for faking their growth potential. All three experienced drops in their stock prices post the announcement, and Clover Health reportedly is under investigation by the SEC.
• The SEC has also put out warning letters on the risks inherent in celebrity-backed blank check companies.
• HBR has also released an article saying the SPAC bubble will soon burst, as investors get weary.
• The bottom line: Investors think IPOs via SPAC will still be a bigger deal in terms of money raised this year, but some are starting to question if indeed this paradigm will remain the case.