Expert sees declining interest in SPAC mergers

Expert sees declining interest in SPAC mergers

Declining Interest was seen in SPAC

LAS VEGAS, NEVADA – For nearly a year, mergers between special purpose acquisition firms (SPACs) dominated the space business. One of the specialists sees warning indications that interest in this method of going public is dwindling.

The broader market’s interest in SPACs is waning, according to Phil Ingle, a managing director at Morgan Stanley. Merging with such “blank check” enterprises may make it more difficult for space companies to raise substantial sums of finance.

According to him, there are some cautious indications in terms of what’s going on in the SPAC sector. He went on to say that the SPAC market is currently showing signs of tiredness.

The case for the SPAC agreement is also bolstered by PIPEs. “It verifies the valuation, it validates the public market storey,” he explained.

SPAC deals across the market in February 2021 comprised $15 billion in PIPEs, according to Ingle. By October, PIPE agreements had dropped to $800 million, and only $200 million of PIPEs had been revealed by mid-November. According to Ingle, the PIPE market has fully dried up.

The trend is another Proof

In the space business, this trend is visible. PIPE rounds were big for companies that went public through SPACs early in the year, notably Rocket Lab’s $470 million PIPE. Terran Orbital, on the other hand, revealed ambitions to go public through a SPAC merger on Oct. 28 with a PIPE of only $50 million.

The increased rate of redemptions, in which SPAC shareholders demand their money back rather than holding stock in the merged business, is a second factor. Redemption rates across the market were about 10% earlier this year but had risen to 70% by November, according to Ingle. This reduces the amount of capital retained by the merging company.

In simpler terms, being a space company, capital is the priority in the SPAC market,

  1. You’ve got an entirely dry PIPE market and,
  2. You’re facing the prospect of big redemptions,” he concluded that capital turns uncertain.

He believes that the chances of a SPAC merger will not improve. For the time being, at least, until companies that have gone public through SPACs, both in the space industry and elsewhere, have demonstrated good technical and financial performance.

“The next year will be a key year in terms of, most critically, how those public firms deliver against their technical goals,” he predicted. Financial results are crucial, but not as critical as reaching technological objectives, he noted.

Companies that do secondary offerings to raise extra capital will also be a factor. He mentioned that It’ll set tone for capital generation in the space.”

Ingle concurred, pointing out that the SPAC expansion benefited from low lending rates, which might be jeopardized if rates rise. “Not just for space, but for some of these other capital-intensive businesses in general, it is an unequivocal, no-question macro risk.”

The wave of SPAC acquisitions, on the other hand, has benefited the space sector as a whole, not just the companies that have used them to go public.

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