SPACs wipe out half their value as investors lose appetite for risky growth stocks

A trader works on the floor of the New York Stock Exchange (NYSE) in New York City on June 16, 2022.

Brendan McDermid | Reuters

SPACs, once the most popular bills on Wall Street, have become one of the most hated trades this year.

CNBC’s proprietary SPAC Post Deal Index, which is made up of SPACs that have completed their mergers and made their target companies public, has fallen nearly 50% this year. The losses more than doubled the S&P 500’s decline in 2022 as the benchmark equity index fell into a bear market.

Appetite for these speculative early-stage growth names with little revenue has waned in the face of rising rates as well as high market volatility. Meanwhile, a regulatory crackdown is drying up the pipeline as bankers have begun to scale back trading activity in the space.

“We believe SPACs will need to continue to evolve in order to overcome the challenges,” said James Sweetman, senior strategist of global alternative investments at Wells Fargo. “General market volatility in 2022 and an uncertain market environment leading to public market losses have also dampened enthusiasm for SPACs.”

The biggest laggards this year in the space include UK online used car startup Cazoo, mining company Core Scientific and self-driving company Aurora Innovation, all of which have plunged more than 80% in 2022.

SPACs represent special purpose acquisition companies, which raise capital in an IPO and use the cash to merge with a private company and take it public, usually within two years.

Some high-profile deals have also been canceled given the unfavorable market conditions, including SeatGeek’s $1.3 billion deal with Billy Beane’s RedBall Acquisition Corp.

– CNBC’s Gina Francolla contributed reporting.

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