Big SPAC unwind has consequences for few

Clover Health Investments

21/09/2022 01:40

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are their own.)
    NEW YORK, Sept 20 (Reuters Breakingviews) - Chamath
Palihapitiya pushed the limits of the blank-check boom
 urn:newsml:reuters.com:*:nL1N2QG179. Now he’s marking its end. The investor who
personified the frenzy in special-purpose acquisition companies
announced on Tuesday he’s winding down two of his vehicles https://chamathreads.substack.com/p/ipo-20-update?sd=pf
 after failing to come up with a deal. If his shortcomings were
the worst of the SPAC fallout, it isn't so bad. 
    The extravaganza had all the hallmarks of a market working
as it shouldn't. SPACs encouraged investors to buy shares in
shell companies and then approve deals with little oversight of
what they bought, or at what price. Misaligned incentives
allowed managers like Palihapitiya to line their pockets. Shares
in four of the six companies which completed mergers with SPACs
he sponsored – space travel firm Virgin Galactic  SPCE.N , real
estate platform Opendoor Technologies  OPEN.O , healthcare
technology firm Clover Health Investments  CLOV.O , and
financial services platform SoFi Technologies  SOFI.O  - are
down between nearly 60% and 80% over the past year, versus an
11% decline in the S&P 500 Index  urn:newsml:reuters.com:*:nL4N30N2SV.
    The SPAC boom was part of the stock market excess inflated
by government stimulus and ultra-low interest rates following
the global pandemic. With borrowing costs rising the vehicles
have lost their shine. The silver lining is that apart from
losses suffered by some SPAC investors and shareholders of
companies that went public via blank checks, there’s little by
way of systemic consequence  urn:newsml:reuters.com:*:nL4N30J23C. (By Lauren Silva
Laughlin)
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 (Editing by Peter Thal Larsen and Sharon Lam)
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