{"id":282674,"date":"2021-06-24T13:59:31","date_gmt":"2021-06-24T10:59:31","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/how-the-spac-bubble-blew-up-and-burst\/"},"modified":"2021-06-24T13:59:31","modified_gmt":"2021-06-24T10:59:31","slug":"how-the-spac-bubble-blew-up-and-burst","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/how-the-spac-bubble-blew-up-and-burst\/","title":{"rendered":"#How the SPAC bubble blew up and burst"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a2e7448746ef\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a2e7448746ef\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/how-the-spac-bubble-blew-up-and-burst\/#The_SPAC_explosion\" >The SPAC explosion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/how-the-spac-bubble-blew-up-and-burst\/#The_bitcoin_parallel\" >The bitcoin parallel<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong>#How the SPAC bubble blew up and burst<\/strong>&#8221;<\/p>\n<div>What do Taylor Swift\u2019s record company and Asian \u201csuper-<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>\u201d Grab have in common? They are both part of Wall Street\u2019s recent dealmaking fad: Special Purpose Acquisition Companies (SPAC).<\/p>\n<p>SPACs are shell companies that are floated on the stock market with one purpose: to buy another company. This aims to achieve the same as a stock-market listing or initial public offering (IPO) but in reverse. Instead of a traditional company seeking to raise capital from investors through an IPO, with SPACs the empty listed company is set up first. For this reason, they are sometimes known as blank-cheque companies.<\/p>\n<p>Depending on where the SPAC is listed, whoever is in control usually has two or three years to find a company to buy. If they fail, the SPAC will be wound up and the funds returned to investors.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_SPAC_explosion\"><\/span>The SPAC explosion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>SPACs have been around since the 1990s, but they <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.forbes.com\/sites\/greatspeculations\/2021\/03\/22\/what-are-spacs-and-why-is-everyone-talking-about-them-right-now\/?sh=779f1f933260\">exploded in popularity<\/a> in 2020 and early 2021. This is partly because there has been <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.excelsiorgp.com\/resources\/what-is-a-spac-and-why-are-they-suddenly-so-popular\/#:%7E:text=Because%20the%20stock%20exchanges%20make,exits%20has%20seen%20a%20decline\">more and more capital<\/a> looking to make money, since bonds have been paying unattractively low-interest rates, and far fewer companies are listing than in previous decades.<\/p>\n<p>Regulations have made traditional flotations slower and more expensive. Flotations are also traditionally underpriced on the day of listing to drum up investor interest. But a crucial advantage of SPAC deals is that they are privately negotiated and avoid the risk of money being \u201cleft on the table\u201d.<\/p>\n<p>High-profile deals involving SPACs have included <a rel=\"nofollow noopener\" target=\"_blank\" href=\"http:\/\/www.parabolicarc.com\/2021\/02\/18\/why-virgin-galactic-went-spac\/\">Virgin Galactic<\/a>, sports betting group <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/hindenburgresearch.com\/draftkings\/\">DraftKings<\/a>, and a digital manufacturing firm <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/markets.businessinsider.com\/news\/stocks\/serena-williams-spac-take-velo3d-public-16-billion-deal-ipo-2021-3-1030236391\">called Velo3D<\/a> whose Spac has Serena Williams on the board.<\/p>\n<p>More recently <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.theguardian.com\/business\/2021\/apr\/13\/super-app-grab-to-go-public-in-record-40bn-spac-merger\">Singapore-based app Grab<\/a>, which offers everything from ride hailing to online banking, has done a SPAC deal which will see it valued at US$40 billion (\u00a329 billion). And star US hedge fund manager Bill Ackman, who created the biggest SPAC ever in 2020 with a value of US$4 billion, is using it <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.ft.com\/content\/d77d9883-6b01-4458-9180-8579aa4d346f\">to buy 10%<\/a> of Universal Music, whose roster includes Taylor Swift, Kanye West, and Sting.<\/p>\n<p>Yet despite this eye-catching activity, many would say the bubble in SPACs <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.barrons.com\/articles\/the-spac-bubble-has-popped-where-to-find-bargains-now-51621040743\">has burst<\/a> recently. <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.ft.com\/content\/88d7f577-9bfa-4215-b57b-0f8a4da3644a\">Only 30<\/a> SPAC flotations took place in April and May compared to 299 in the first three months of the year, while total Wall Street investment-bank revenues derived from these vehicles have fallen from over 20% to under 5% over the same period.<\/p>\n<p>Finally, the two largest US exchange-traded funds focused on SPACs \u2013 <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.defianceetfs.com\/spak\/\">SPAK<\/a> and <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.spcxetf.com\/\">SPCX<\/a> \u2013 are down 26% and 12% in value respectively from their February highs. This is probably linked to US regulator the Securities and Exchange Commission (SEC) <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/observer.com\/2021\/04\/spac-deal-ipo-slowdown-april-sec-crackdown\/\">beginning to<\/a> rein in the sector to <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.cnbc.com\/2021\/05\/27\/sec-considers-new-investor-protections-for-spacs.html\">protect retail investors<\/a>.<\/p>\n<p>Though in my view the rate of SPAC creation would have slowed down to reach a lower equilibrium anyway, the SEC intervention is reducing some of the benefits to using SPACs as a way of accessing the capital markets. <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.ft.com\/content\/99de2333-e53a-4084-8780-2ba9766c70b7\">For instance<\/a>, the SEC has made it harder for SPACs to reward early investors with shares in a company after an acquisition and is looking at preventing the management from making statements about future profitability.<\/p>\n<p><strong>SPAK share price, October 2020 to June 2021<\/strong><\/p>\n<figure class=\"align-center zoomable\">\n<p><figure class=\"post-image post-mediaBleed aligncenter\"><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/images.theconversation.com\/files\/407098\/original\/file-20210617-19-14n3okf.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip\"><img loading=\"lazy\" decoding=\"async\" alt=\"SPAK weekly share price rising, falling and then rising slightly\" width=\"600\" height=\"343\" class=\"js-lazy\" src=\"https:\/\/images.theconversation.com\/files\/407098\/original\/file-20210617-19-14n3okf.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip\"\/><noscript><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/images.theconversation.com\/files\/407098\/original\/file-20210617-19-14n3okf.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip\" alt=\"SPAK weekly share price rising, falling and then rising slightly\" width=\"600\" height=\"343\" class=\"\" srcset=\"\"\/><\/noscript><\/a><figcaption><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/thenextweb.com\/news\/#\" data-url=\"https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Feditorial.thenextweb.com%2Fhardfork%2F2021%2F06%2F24%2Fhow-spac-bubble-blew-up-and-burst-syndication%2F&amp;via=thenextweb&amp;related=thenextweb&amp;text=Check out this picture on: *SPAK is the ticker symbol for the Defiance Nx Gen SPAC Derived ETF. Trading View, CC BY-SA\" data-title=\"Share *SPAK is the ticker symbol for the Defiance Nx Gen SPAC Derived ETF. Trading View, CC BY-SA on Twitter\" data-width=\"685\" data-height=\"500\" class=\"post-image-share popitup\" title=\"Share *SPAK is the ticker symbol for the Defiance Nx Gen SPAC Derived ETF. Trading View, CC BY-SA on Twitter\"><i class=\"icon icon--inline icon--twitter--dark\"\/><\/a>*SPAK is the ticker symbol for the Defiance Nx Gen SPAC Derived ETF. Trading View, CC BY-SA<\/figcaption><\/figure><figcaption\/><\/p>\n<\/figure>\n<h2><span class=\"ez-toc-section\" id=\"The_bitcoin_parallel\"><\/span>The bitcoin parallel<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Regulators often resist financial innovation in the hope of reducing the uncertainty in investing. It is not by chance that Gary Gensler, the SEC chair, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.sec.gov\/news\/testimony\/gensler-2021-05-26\">recently associated<\/a>\u00a0SPACs and bitcoin when he spoke of the need for better investor protections. As with SPACs, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/news.bitcoin.com\/ecb-chief-lagarde-cryptocurrencies-money-laundering-no-intrinsic-value-buy-prepared-to-lose-all-money\/\">regulatory moves<\/a> to <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.reuters.com\/technology\/chinese-financial-payment-bodies-barred-cryptocurrency-business-2021-05-18\/\">restrict the use<\/a> of bitcoin and other cryptocurrencies have probably contributed to prices falling lately (along with other worries such as <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/theconversation.com\/bitcoin-what-elon-musks-u-turn-on-tesla-payments-means-for-future-of-crypto-160891\">bitcoin\u2019s carbon footprint<\/a>).<\/p>\n<p>And that\u2019s not all SPACs and bitcoin have in common. Bitcoin is e-money that can circulate anonymously among infinite users without needing banks or a central issuing authority. But these potential benefits depend on enough users accepting it as a store of value. To paraphrase something <a rel=\"nofollow noopener\" target=\"_blank\" href=\"http:\/\/www.inquiriesjournal.com\/articles\/241\/the-universal-prayer-how-money-became-the-worlds-first-shared-religion#:%7E:text=We%20all%20believe%20in%20money,define%20them%20in%20those%20terms.\">said of<\/a> currencies in <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/general\/\" data-internallinksmanager029f6b8e52c=\"3\" title=\"General\" target=\"_blank\" rel=\"noopener\">general<\/a>, bitcoin is like a religion, based on faith.<\/p>\n<p>The same is true of SPACs, in that public investors entrust the management to find a suitable takeover target. And both bitcoin and SPACs disrupt the common wisdom around an established financial practice. While bitcoin is a new way of exchanging value, some have described SPACs as the <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/fortune.com\/2021\/05\/22\/spacs-ipo-stock-grab-arrival-deliveroo\/\">second coming of the IPO<\/a>.<\/p>\n<p>In part due to the severe restrictions that a traditional IPO places on how a company may communicate its story, companies not yet producing revenues had been staying private for longer. SPACs changed this, and in the process became a way for amateur investors to be part of late-stage venture capital funding. Instead of only accredited professionals and insiders providing such funding to new companies, SPACs open them up to anyone \u2013 particularly in an era where stock-market investing has been made easier thanks to apps like Robinhood and eToro.<\/p>\n<p>In this way, investors can make bets on whether new kinds of investment like SPACs and cryptocurrencies will succeed. Inevitably they need to be regulated, but regulators will need to be careful in how they handle these nascent products if they want them to develop. Vehicles for creating future wealth, be it SPACs or bitcoin or anything else, are underpinned rather than undermined by uncertainty. Again, the <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/dailyhodl.com\/2021\/04\/16\/crypto-asset-market-could-surge-500x-investors-dont-realize-magnitude-of-whats-happening-raoul-pal\/\">same is said<\/a> of bitcoin and other cryptocurrencies: if amateur investors think a crypto project could eventually go stellar, by buying and holding the relevant coins they can invest far earlier than with equivalent projects in previous decades.<\/p>\n<p>They have developed systems for <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/ideas.repec.org\/a\/pal\/jbkreg\/v21y2020i2d10.1057_s41261-019-00100-5.html\">self-regulating<\/a> by specialists <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/news.law.fordham.edu\/jcfl\/2021\/03\/10\/dulcis-in-fundo-a-re-thinking-of-spacs-and-the-spacs-promote\/\">who often understand<\/a> the needs of the various players better than the regulators themselves. In the case of SPACs, regulators should focus on ensuring that the financial information published by the companies involved is truthful and consistent \u2013 so, for instance, the SEC is right to be <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.ft.com\/content\/99de2333-e53a-4084-8780-2ba9766c70b7\">tightening up<\/a> on to what extent SPAC operators disclose conflicts of interest.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img loading=\"lazy\" decoding=\"async\" style=\"border: none !important;margin: 0 !important;max-height: 1px !important;max-width: 1px !important;min-height: 1px !important;min-width: 1px !important;padding: 0 !important\" alt=\"The Conversation\" width=\"1\" height=\"1\" class=\"js-lazy\" src=\"https:\/\/counter.theconversation.com\/content\/162968\/count.gif?distributor=republish-lightbox-basic\"\/><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https:\/\/theconversation.com\/republishing-guidelines --><\/p>\n<p><noscript><img loading=\"lazy\" decoding=\"async\" style=\"border: none !important;margin: 0 !important;max-height: 1px !important;max-width: 1px !important;min-height: 1px !important;min-width: 1px !important;padding: 0 !important\" src=\"https:\/\/counter.theconversation.com\/content\/162968\/count.gif?distributor=republish-lightbox-basic\" alt=\"The Conversation\" width=\"1\" height=\"1\" class=\"\" srcset=\"\"\/><\/noscript><\/p>\n<p><em>Article by <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/theconversation.com\/profiles\/daniele-dalvia-1240683\">Daniele D\u2019Alvia<\/a>, Teaching Fellow in Banking and Finance Law, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/theconversation.com\/institutions\/queen-mary-university-of-london-1745\">Queen Mary University of London<\/a><\/em><\/p>\n<p><em>This article is republished from <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/theconversation.com\">The Conversation<\/a> under a Creative Commons license. Read the <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/theconversation.com\/spacs-why-investors-fell-in-love-with-these-stock-market-vehicles-and-how-the-bubble-burst-162968\">original article<\/a>.<\/em><\/p>\n<\/div>\n<p><script async src=\"\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more like this article, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/technology\/\" target=\"_blank\" rel=\"noopener\">Technology category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/thenextweb.com\/news\/how-spac-bubble-blew-up-and-burst-syndication\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;#How the SPAC bubble blew up and burst&#8221; What do Taylor Swift\u2019s record company and Asian \u201csuper-app\u201d Grab have in common? They are both part of Wall Street\u2019s recent dealmaking fad: Special Purpose Acquisition Companies (SPAC). SPACs are shell companies that are floated on the stock market with one purpose: to buy another company. This&#8230;<\/p>\n","protected":false},"author":1,"featured_media":282675,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/img-cdn.tnwcdn.com\/image\/hardfork?filter_last=1&fit=1280,640&url=https:\/\/cdn0.tnwcdn.com\/wp-content\/blogs.dir\/1\/files\/2021\/06\/SPAC-hed-shutterstock_1932661229-1.jpg&signature=9dddaf03afc8559ca334259529e84090","fifu_image_alt":"","footnotes":""},"categories":[18],"tags":[],"class_list":["post-282674","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-technology"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/282674","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=282674"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/282674\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/282675"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=282674"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=282674"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=282674"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}