Traders work on the trading floor of the New York Stock Exchange.
Brendan McDermid | Reuters
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For SPAC investors looking to pick winners in the cooling market, a feature of blank check deals has resulted in steady outperformance.
According to Wolfe Research, the biggest determining factor in a SPAC’s post-merger stock performance was the sponsor’s experience or lack of experience. The company found that SPACs with “experienced operators” – that is, the CEO or chairman of the blank check sponsor – had direct operating experience in the acquired company’s industry, averaged high returns.
According to Wolfe Research, stocks of deals with seasoned executives far outperform those without a month, three months, six months, and a year after the mergers were completed. A year later, SPACs with experienced operators saw an average rally of 73%, while those lacking an industry veteran suffered an average loss of 14%, the company said.
“We found that the biggest differentiator in De-SPAC stock performance was the presence / absence of an experienced operator,” said Chris Senyek of Wolfe Research in a note.
SPAC emissions down by almost 90%
After a record quarter in the first quarter, the SPAC market has slowed as regulatory pressures increased and supply reached unsustainable levels. According to Barclays data, SPAC issuance fell 87% in the second quarter to a total of $ 13 billion. Certainly, the current pipeline of upcoming SPAC IPOs remains high at 71 billion US dollars, as Barclays data showed.
SPACs, or purpose-built companies, raise capital on an IPO and use the cash to merge with a private company and get it public, typically within two years.
With deadline pressures in a volatile market, some SPACs have had to settle for less than ideal goals and in some cases toss their entire blueprint out the window. CNBC previously reported that a recreational SPAC was merging with a biotech company, while a cannabis blank check company made a deal with a space company.
The explosive popularity of SPACs over the past year also attracted a number of celebrities who were new to Wall Street to hop on the bandwagon. The U.S. Securities and Exchange Commission previously warned against such deals, which were endorsed by public figures, and urged investors to think twice before jumping in.
Many SPAC stocks ended their 2021 rally as the market cooled. The proprietary CNBC SPAC Post Deal Index, which is made up of the largest SPACs that have announced a target within the last two years or have already completed a SPAC merger, was roughly on par with last year on Friday. At its peak in 2021, the index rose double-digit.
– CNBC’s Nate Rattner and MIchael Bloom contributed to this story.
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