A new buyback tax has motivated more and more SPAC sponsors to close shop before year-end, adding further headwind to the blank check space already roiled by a tough market environment.
A total of 27 SPAC deals worth $12.8 billion were liquidated this year, according to data from SPAC Research. Under the new provision in the Inflation Reduction Act, SPAC sponsors could face a 1% exercise tax when returning cash to investors beginning in 2023.
“Market conditions are the driving factor, and apart from that, there’s the 1% exercise tax,” said Melanie Chen, a partner at UHY LLP. “I think it added a bit of chemistry to speed up the decision-making process.”
SPACs, Wall Street’s hottest tickets of 2020 and 2021, are enjoying a major reset amid mounting economic and regulatory headwinds. More than 450 deals for a merger target are still on the market ahead of the 2023 deadlines, according to SPAC Research.
The appetite for SPACs, which are often early-stage growth stocks with low income, has waned amid rising interest rates and heightened market volatility. Even deals from some of Wall Street’s most prominent investors failed to materialize.
Chamath Palihapitiya, once dubbed the SPAC king, shelved two deals this month after failing to find suitable merger targets by the deadline and repaid $1.6 billion to investors. Bill Ackman, who raised $4 billion in the biggest SPAC ever, closed the deal in July amid troubled markets.
SPACs stand for special purpose acquisition companies that raise capital in an IPO and use the money to merge with a private company and take it public, usually within two years.
Stocks that went public through SPACs have been hit hardest during the market turmoil. The CNBC SPAC Post Deal Index has fallen over 60% over the past year.