SPACs, Special Purpose Acquisition Companies, or blank-check companies have settled on deals to acquire a member-only startup airline, an AR firm, and a company called Two Bit Circus this month as they face pressing deadlines to either continue to buy or close their shop.
So far in May, at least 16 special-purpose acquisition company tie-ups have been disclosed, the highest since December, reducing a backlog of roughly 600 SPACs looking for a deal.
As per merger presentations, almost half of the targets are not likely to be profitable this year. And it might undermine their prospects in a sector that has been one of the market’s lowest performers. Two Bit Circus Inc., a micro-amusement park operator, and zSpace Inc., a startup that offers augmented and virtual reality technologies, are among the smallest prospects, with a combined enterprise value of around 15 billion USD.
While the deals may indicate that blank checks are breaking their shackles, they only make a dent in the more than 160 billion USD in bullseye SPACs, according to data collated by SPAC Research. The ones with profitless prospects are also fuelling concerns that SPACs are buying less-than-ideal prospects as self-preservation efforts.
Status of This Month’s SPACs Deals
Alpine Acquisition Corp. is buying Two Bit Circus and hotels owned by Atrium Hospitality LP and combining them to create “an immersive tale experience weaved throughout the entire resort,” according to the company’s website. The project is expected to be completed in the third quarter, with a positive net operating income in the first year.
Meanwhile, Tuscan Holdings Corp. II shelved its plans to go public with a cannabis company in favor of partnering with Surf Air Mobility Corp. It is a membership-based private plane operator with intentions to use electric motors. Tuscan is attempting the fifth extension of its initial lifespan to complete the deal. The combined company expects to earn 100 million USD in sales from all business units in 2022.
The collaboration between zSpace and EdtechX Holdings Acquisition Corp II was announced roughly a month before the SPAC June deadline. Its investors plan to reward shareholders with additional cash if the sale is prolonged.
The acquisition of Near Intelligence Holdings Inc. by KludeIn I Acquisition Corp. came six months after reports of a deal for the consumer behavior data provider had emerged. The deal was concluded less than two months before the SPAC’s deadline. As early as 2024, Near predicts positive adjusted Ebitda.
More About SPACs
SPACs get their name – blank checks – because they generate money through a public offering to purchase a private company that will be disclosed later. They have a set amount of time to execute a transaction, usually about two years. If they don’t, the company will have to return the money to shareholders, managers will lose their jobs, and the sponsors may lose all of their funds.
Traders have started to turn their backs on companies that went public through a SPAC merger, particularly those that lack proven business concepts or are years away from turning a profit. This year, the De-SPAC Index, which measures 25 companies that have made such transactions, is down 52%.
Consequently, this month, at least 18 sponsors withdrew or abandoned registrations for new SPACs, leaving 147 blank-check companies waiting in the wings to go public. After failing to find a contract, two SPACs actively trading have stated that they will close their doors and refund investors’ money.