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Earnings Slide Startup Execs Back Away From SPACs After Stock

Startup Execs Back Away From SPACs After Stock, Earnings Slide

May 24, 2021 at 02:28AM
by PYMNTS

SPACs are losing some of their sparkle among the heads of startup companies, the Wall Street Journal reports.

Using Special Purpose Acquisition Companies, or SPACs, to fold privately held businesses into publicly trade entities commonly called “blank check” companies was all the rage last year. Proponents heralded the technique of going public as a cheaper, more efficient alternative then guiding an existing privately held business through regulatory hoops.

But according to the Journal, heads of companies looking to go public are leery of the approach following cases of falling share prices after initial SPAC deals and investor dissatisfaction as a result.

“The reluctance is palpable,” Adam J. Epstein, who advises startup CEOs and their boards, reportedly told the Journal. “It’s gone from being a bona fide alternative path to an IPO to ‘We don’t really want to be a punchline.’”

Among the concerns around SPACs is that some combined companies have failed to meet expected financial performance goals, the Journal reported.

The Journal quoted a report from Silicon Valley Bank that concluded that in 2020, 50 percent of companies created through SPACs missed revenue projections and 42 percent posted declining revenue in their first years as publicly traded entities.

Among 44 tech companies that went public through SPACs in 2020 and the first four months of 2021, share prices fell an average of 12.6 percent as of May 17, researchers at the University of Florida reportedly told the Journal. The comparable figure for 77 tech companies that went through traditional IPOs was a decline of 10.7 percent.

PYMNTS, primarily citing information from Reuters, reported in March 2021 that SPACs appeared to be in decline. But in just the 10 weeks of 2021 that transpired prior to that report, SPAC deals already had passed the $83.4 billion in total value notched in all of calendar 2020.