• In Feb 2021, I wrote an article warning people about frenzies in the IPO and SPAC markets (posted here)
• I cited a working paper that said, ‘We find, first, that for a large majority of SPACs, postmerger share prices fall’ reference here
• In May of 2021, the SEC took the extraordinary step of warning investors about SPACs reference here.
• Last Friday, the Wall Street Journal published an article stating that 50% of companies that finished a SPAC deal in 2021 and 2022 are down 40% or more.

An article in the Wall Street Journal published last Friday caught my attention.  The article was titled, ‘The SPAC Ship is Sinking.  Investors Want Their Money Back.’  The article requires a subscription and can be found here.  WSJ noted that more then half of the SPAC deals completed in 2021 and 2022 are down over 40%.  ‘The SPAC Ship is Sinking’?  I wonder, did it ever float to begin with?

The WSJ article stated that $240 Billion dollars had been raised for SPAC deals in 2021 and 2022.  SPACs are Special Purpose Acquisition Companies that are used to bypass IPO securities regulations.  SPAC have a number of elements that make them incredibly undesirable.  Sponsors take a very large cut of the deal for promoting a deal.  This dilutes investors ownership interests.  Investors were bidding up shares even before knowing if the SPAC would complete a deal to take public.  The English expression, ‘a pig in a poke’ comes to mind.  Farmers would sell buyers what they thought was a piglet in a bag (a poke).  Instead of selling a pig, they would insert a kitten.  ‘Letting the cat out of the bag’ is to expose the scheme.

Unfortunately from some many investors that did not do their homework, they did indeed buy a ‘pig in a poke’.