SPAC Surge May Benefit Targets That Can Play a Waiting Game

(Bloomberg) -- As the number of blank-check companies racing to do a deal starts to stack up, advisers have some advice for companies that find themselves on the receiving end of the SPACs’ inquiries: Don’t pick up the phone.

Special purpose acquisition companies, which raise money to make an unspecified purchase, typically have to beat a two-year deal deadline to avoid returning billions of dollars to investors. After a recent surge in issuance, next year could see their potential targets courting an unprecedented wave of suitors.

In October 2022, the number of SPACs hitting the wall will more than double to 31 from the previous month, with as much as $10.2 billion on the table to be given back to investors, according to data compiled by Bloomberg. By March 2023, that figure will jump to $34.5 billion with 106 SPACs expiring, the data showed.

John Chachas, the founder and co-managing principal of advisory firm Methuselah Advisors, said his firm is telling companies looking to merge with a SPAC to wait. As blank-check firms start to run out of time, companies might be in a better position to negotiate a superior deal, he said.

“We think companies shouldn’t answer their phones until about September 2022,” Chachas said. “After that they will have many suitors desperate to do a deal to save their founder’s capital from getting flushed.”

The SPAC boom may wind down with little in the way of drama, though, said Ramey Layne, a Vinson & Elkins partner who has advised more than a dozen SPACs both before and during their recent surge in popularity.

If the market keeps cooling -- as it has done in recent months after regulators started to closely examine the market -- SPACs that haven’t yet raised money are likely to just leave their listing registrations on file, Layne said. Even for those approaching redemption deadlines, there are good reasons to avoid reaching an overpriced transaction merely for the sake of a deal, he said.

As has already happened with some deals that have soured, SPAC sponsors who push for deals that don’t work out may end up with investor lawsuits to show for it, Layne said.

“The worst outcome is going to be deals that close and then perform poorly,” he said.

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