SPAC fundraising return defies expectations
Date
7/28/2024 7:15:24 AM
(MENAFN) Investors and bankers are once again rallying to raise substantial funds for new special purpose acquisition companies (SPACs), challenging predictions that this asset class would falter after a series of scandals and increased regulatory scrutiny. SPACs, often referred to as "blank check companies," generate capital through an initial public offering (IPO) with the intention of later acquiring a company. Despite previous setbacks, fundraising efforts for SPACs have been gradually recovering in 2023, with a 20 percent increase amounting to USD3.1 billion, according to Dialogic. Experts anticipate that this momentum will continue to build.
Since early June, over 20 SPACs have filed for IPOs, collectively aiming to raise USD4.3 billion, a stark contrast to the USD1.8 billion raised during the latter half of 2023. Tina Pappas, a Jefferies executive in charge of the bank's SPAC division, noted the strong interest from IPO investors in these companies, predicting an acceleration in SPAC IPOs for the remainder of this year and into the next. Although the levels may not reach the highs of 2021, the renewed activity signifies a robust market interest.
The SPAC phenomenon gained significant traction during the COVID-19 pandemic, driven by low interest rates and high stock prices, which led many startups to merge with SPACs as a quicker and more cost-effective route to going public compared to traditional IPOs. However, the surge in SPAC activity plummeted after 2021 due to rising interest rates and the underperformance of many companies that went public via SPAC mergers. This downturn prompted the Securities and Exchange Commission (SEC) to introduce new regulations, though the final rules were less stringent than initially proposed.
Advocates of SPACs acknowledge the need to rebuild trust with wary companies and investors. However, they remain optimistic, arguing that SPACs will gain an advantage as traditional IPO activity declines and the market gradually recovers from a prolonged slowdown. This renewed interest in SPACs suggests a potential revival, despite the challenges and skepticism faced by the industry.
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