But it was so much fun while it lasted?
By Wolf Richter for WOLF STREET.
At least 21 companies that had gone public via SPAC during the SPAC mania starting in 2020 filed for bankruptcy in 2023, according to Bloomberg. In 2022, 11 from from that era filed for bankruptcy, according to Skadden. These companies filed for bankruptcy because they burned huge amounts of cash and then ran out of cash to burn. But that didn’t matter in the era of consensual hallucination, as we’ve come to call it.
The latest bankruptcy filing came from electric-scooter rental outfit Bird Global, which filed for bankruptcy just before Christmas, 25 months after having gone public via merger with a SPAC. It was dogged by endless losses and endless cash burn – the result of the self-destructive business model that was so popular during the era of consensual hallucination. And it was hit by a flood of personal-injury lawsuits.
The stock once had a market cap of $2.5 billion. It’s still being shuffled around over the counter but is essentially worthless. Before its delisting, the ticker was BRDS, as in “for the birds.” They did have a sense of dry dark humor.
In addition, about 140 other companies that have gone public via SPAC merger will likely need to raise more cash in 2024 in order to kick the can down the road, according to Bloomberg. And raising more funds is going to be tough for endless cash-burn machines, given the losses hapless investors have already taken.
In addition, 44% of the companies that went public via SPAC merger and that have filed annual reports in 2023 have included “going-concern” warnings in their filings, indicating that their auditors think they may not have enough cash to make it through the next year. This rate was double the rate for non-SPACs, according to Bloomberg, citing Hudson Labs, which analyzes SEC filings.
In addition, the stocks of many of the companies that went public via SPAC, have totally collapsed, after spiking to ridiculous highs. We’ve looked at a bunch of them here in our pantheon of Imploded Stocks, which we kicked off in March 2021, following that infamous February 2021.
Speed records from SPAC merger to bankruptcy were set and broken. EV maker Electric Last Mile Solutions once held the speed record: 12 months from SPAC merger to bankruptcy filing in June 2022.
But that record was soon broken, including in December 2022, when Bitcoin miner and crypto-hosting-platform Core Scientific filed for bankruptcy 11 months after going public via merger with a SPAC in January 2022.
And record continued to be broken, including most recently, by software firm Near Intelligence, which filed for bankruptcy on December 11, 2023, just nine months after going public via SPAC in March 2023. The stock kathoomphed 75% in its first week as a public company and is now worthless.
WeWork took its time, finally filing for bankruptcy in November, two years after going public via merger with a SPAC, after burning through at least $16 billion raised over its 13 years of existence, much of it from SoftBank and its Vision fund.
In 2019, before WeWork’s scuttled IPO, its “valuation” was jacked up to $47 billion, a masterpiece of Softbank scheming. After it went public via SPAC, peak market cap reached nearly $10 billion. The stock still gets shuffled around over the counter for a few cents, giving it a market cap of less than $20 million. And many landlords, or their creditors after they took over the properties, have gotten hung out to dry.
EV maker Proterra filed for bankruptcy in August, 25 months after going public via SPAC merger. The company made a few electric buses a year. At the peak, it had a market cap of $4 billion.
EV maker Lordstown made the trip from SPAC merger to bankruptcy in about two-and-a-half years, and class-action lawsuits have been filed against the company for misleading investors. The shares of other EV SPACS have totally collapsed, and many of them are headed for bankruptcy.
Post-SPAC stocks were a show all on their own. By industry group, cannabis firms are the winners, in terms of kathoomph of their post-SPAC merger stocks since 2009, according to SPAC Insider. Here are the top five, in terms of kathoomph:
- Cannabis firms: -97.6%
- EV makers: -91.1%
- Healthcare: -87.6%
- Technology: -86.0%
- Consumer: -85.7%
The CNBC Post-SPAC index, which tracks stocks after their merger with a SPAC, peaked in February 2021 and has since then collapsed by 82%.
But don’t cry for the sponsors. The sponsors of the blank-check companies – the Special Purpose Acquisition Companies or SPACs – make money no matter what as long as their SPAC succeeds in merging with a privately held company. So the motivations are all wrong.
During that era of consensual hallucination, celebrities started riding the SPAC gravy train, promoting all kinds of outfits, sponsoring and touting their own SPACs, to the point that the SEC issued a warning in March 2021 about “celebrity involvement with SPACs.”
By which time it was already too late because in February 2021, the whole SPAC-IPO schmear started coming unglued, to the point we mused here on March 3, 2021: “Was That the IPO Stocks Bubble that Just Popped?” A number of those celebrity SPACs have now gotten sued by their investors.
Sponsors take their SPAC public via regular IPO. At that point, the stock trades publicly, usually around $10 a share, but the company is just a shell with some cash looking to acquire a privately held company, such as Bird Global, which then becomes the publicly traded entity, and the ticker is changed to reflect the acquired company’s name.
The number of SPAC IPOs, where sponsors turn their blank-check companies into publicly traded stocks, had been rising even in 2017, 2018, and 2019. But in 2020, they more than quadrupled to 248 SPAC IPOs, and in 2021 they exploded to 613 SPAC IPOs, according to SPAC Insider. In 2022, as this stuff was already coming unglued, another 86 got pushed out the window, and in 2023 another 31:
Of those SPACs that went public since 2009 – the chart above – 564 completed a merger with a target company, such as with Near Intelligence, which now filed for bankruptcy.
Another 369 SPACs liquidated and returned the funds to the shareholders of the SPAC, or announced that they would liquidate, after they failed to merge with a target company within the two-year window, or the extension, according to SPAC Insider. In those cases, the sponsors took some losses, and public investors mostly did not, which is why sponsors are motivated to merge with a target company, even if it’s an instant kathoomph for investors.
And there are still a bunch of SPACs out there looking for a target (129) or trying to complete an already announced merger (142), according to SPAC Insider. And if those efforts fail, which would be the best-case scenario for investors, they will also have to liquidate.
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