Has the SPAC spigot run dry?
New issuances via special purpose acquisition vehicles — blank-check entities that raise capital to merge with private companies and take them public — dropped off in April, with just 10 new SPACs coming to market versus 109 in March, according to SPAC Research.
Investors were particularly spooked by new guidance from the Securities and Exchange Commission indicating that it may re-classify SPAC warrants as liabilities, which would force existing and prospective SPACs to recalculate significant portions of their financial statements.
Still, with SPACs raising more money in the first three months of 2021 than they did throughout all of last year, some of the recent disinterest may be “misplaced,” Morgan Creek Capital Management’s Mark Yusko told CNBC this week.
“This is a long-term trend,” Yusko, his firm’s founder, CEO and chief investment officer, said Monday on CNBC’s “ETF Edge.” “The SPAC merger, we believe, will become the preferred method for high-growth, innovative companies, or what we call the companies of the future, to go public.”
After a “frenetic” first quarter for new issuances and the SEC crackdown, “it’s normal and natural to have a little lull,” he said.
Even so, SPACs are “the most streamlined” way for retail investors to get access to newly public companies, Steve Grasso, director of institutional sales at Stuart Frankel, said in the same “ETF Edge” interview.
“With a SPAC, you get in at $10, you either vote for the deal or don’t vote for the deal, and you get to be on equal footing and get inside those investor rounds where in any other place in the market, the retail investor can’t get in there,” said Grasso, who is also a CNBC contributor.
“You can regulate them a little bit with their forward guidance, … but other than that, they are the best vehicle for a retail investor,” he said.
There are currently three SPAC-related exchange-traded funds on the market: Yusko’s actively managed Morgan Creek – Exos SPAC Originated ETF (SPXZ), the broad-based Defiance Next Gen SPAC Derived ETF (SPAK) and Tuttle Tactical Management’s SPAC and New Issue ETF (SPCX).
Siding with active managers is likely the safest way for ETF investors to play the SPAC space, said Tom Lydon, the CEO of ETF Trends, adding that while SPAK holds 180 or so SPACs, it’s “not necessarily as critical as far as what’s in the index” as a fund such as SPXZ.
“You need active management in the SPAC area,” Lydon said. “This is an area for the average investor who probably doesn’t have the skills or the capabilities to dig deep into the team and also what might be on their radar as far as acquisitions.”