(Bloomberg) --Some of Wall Street’s savviest investors and biggest banks have quietly walked away from the blank-check industry, leaving behind almost $27 billion of planned offerings as the sector’s returns crumble and regulators step up scrutiny.
Special-purpose acquisition companies backed by well-known sponsors including Paul Singer’s Elliott Management Corp. and James Murdoch are among nine pending launches that were declared abandoned last week by the U.S. Securities and Exchange Commission. Meanwhile, Goldman Sachs Group Inc. and Bank of America Corp. became the latest investment banks to step back from supporting SPACs and their merger efforts.
With almost half the year gone, more than 30 SPACs seeking to raise over $8 billion have been abandoned by sponsors without even alerting the SEC to their change of plans. That’s on top of the 65 sponsors that formally withdrew about $18 billion of offerings for new blank checks in the same period, Bloomberg data show.
The market for SPACs has slumped as investors turn their backs on speculative investments and the industry gets hit by proposals from the SEC to clamp down on overly rosy forecasts of future growth and profits.
They’re called blank checks because they raise money through initial public offerings to buy a business that will be identified later on. SPACs boomed at the onset of the pandemic as celebrities, athletes and entrepreneurs teamed up with financiers to feed what seemed like insatiable and sometimes indiscriminate demand from investors.
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The rush resulted in a glut of more than 600 SPACs that are still on the lookout for deals. Even after the latest exodus of sponsors, 151 SPACs are still seeking to go public, data from SPAC Research show.
A pending SPAC is deemed abandoned when its registration statement has been on file but not effective for more than nine months and the sponsors don’t respond to SEC queries about its status.
For sponsors, there aren’t many tangible benefits to abandoning the process instead of formally withdrawing the application. However, those who opt to withdraw can elect to have the filing fees they paid be credited to certain affiliates of the SPAC, according to Michael Hardy, a partner at Duane Morris LLP.
Fee Credit
“If you have another entity that’s going to be involved in doing things in front of the SEC, you might want to recoup those fees,” Hardy said by phone. “A lot of the registration statements that were ordered abandoned this year were second or third SPACs by a given sponsor, so maybe they just don’t care as much.”
Elliott does have a SPAC on the hunt for a deal, Elliott Opportunity II Corp., which is targeting a technology company. Representatives for Elliott and Murdoch’s Lupa Systems LLC declined to comment.
As for the banks, some that handled the bulk of previous SPAC offerings have paused their efforts as shares of companies that completed mergers fizzle and the SEC pushes for tighter and potentially costly regulations. The agency’s proposals could make it easier for investors to sue over false projections, a direct risk for investment banks.
The benchmark De-SPAC Index of companies that were bought by SPACs has fallen about 80% from its February 2021 peak. The majority of the more than 300 de-SPACs are trading below the $10 price they traditionally go public at, data compiled by Bloomberg show.