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Numerous authors have claimed that a reputed ‘SPAC bubble’ has burst, will burst, or may have burst at different times over the past twelve months.1 While SPAC pricings are not launching at their February 2021 pace, investors are beginning to realize and take advantage of the low-risk investment opportunities to retail and institutional investors offered by the SPAC model.2 Moreover, SPACs have expanded their target-horizons beyond the United States to Europe and China with greater frequency, acquiring high-quality targets with great frequency and success.

Recently, columnists at the Wall Street Journal commented that now may be the time for risk-averse investors to begin investing in SPACs since their shares are trading at lower values than the beginning of 2021 and the investment vehicle is lower risk and higher reward than a traditional corporate bond.3 Furthermore, SPACs, as blank check companies, hold the total of their combination-earmarked funds in an interest-bearing trust account. Shareholders retain the right to redeem their shares, with interest, prior to any completed de-SPAC. While the rate of redemptions has risen, the redemption mechanism paired with lower share prices could increase retail and institutional investment, as SPACs are beginning to be seen as affordable, stable and low-risk investment vehicles. As such, they will likely become a mainstay in investment portfolios with greater frequency, as more investors invest in them to take advantage of these benefits.

Additionally, the market is beginning to adjust to and seek increased interest rates. In recent months, SPAC sponsors have been overfunding SPAC trusts at higher rates, at $10.10 or $10.20 per share, to increase investor interest for the launch of the SPAC initial public offering (“IPO”) and generate a greater yield.4 This renewed interest in SPACs may lead to a second wind of interest and higher investment at the IPO stage. Combined with shorter combination windows, on average, and alternatives to private investments in public equity (“PIPEs”), SPACs may be forced to seek out and combine with a target with greater speed.

In line with increased market activity, SPACs have been seeking out targets in Asia and Europe with greater frequency.5 Pierre Suhrcke, a venture partner at the European investment firm TempoCap, highlighted in a July 2021 interview that Europe is an untapped venue for SPAC activity, and that the speed of going public associated with SPACs  would be a welcome change.6 There has been a greater SPAC push into the UK and Europe to take advantage of the broadened field of targets, and as the SEC has increased disclosure requirements around China-based investments, this increased interest can expected to only grow.7 This renewal and expansion of targets has and will continue to produce constant growth in the SPAC market, and SPACs are beginning to have a greater venue of targets despite a shorter turnaround to combine. This signals that SPACs will retain their position as a continued holding for most investors.

1 See, e.g., Jon Sindreu, The SPAC Bubble is Burst. It May Be Time to Invest, The Wall Street Journal, Sept. 14, 2021; Ivana Naumovska, The SPAC Bubble is About to Burst, Harvard Business Review, Feb. 18, 2021.
2See id.
3 See id.
4 Current markets Webinar
5 https://www2.deloitte.com/xe/en/insights/industry/financial-services/spacs-in-europe.html
6 Chris Metinko, https://news.crunchbase.com/news/as-spacs-slow-terms-change-and-the-market-widens-for-targets/
7 https://www2.deloitte.com/xe/en/insights/industry/financial-services/spacs-in-europe.html

Mike Blankenship

Houston Managing Partner at Winston & Strawn LLP

713.651.2678
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