An In-Depth Look at SPAC Activity Throughout the Full Year of 2023
Below is a summary of the 2023 SPAC market.
SPACs finally made it to the end of 2023. It was a challenging year, but one that was marked by a necessary rebalancing of supply and demand. After experiencing a “too hot” SPAC market, followed by one that was “too cold”, SPACs head into 2024 hoping for a Goldilocks moment where the market is “just right”. However, there’s still more work to be done in order for that to happen.
In the meantime, let’s review the full-year 2023 before heading into Q1 and beyond.
SPAC IPO Count
By all measures, 2023 was a difficult one for IPO issuance, including both traditional IPO and SPAC. The full-year 2023 SPAC IPO count of just 31 is even less than 2017’s count of 34. Clearly the 31 IPOs is a far cry from 2021’s 613 priced SPACs, however, that 613 figure was largely the result of Fed monetary policy and a zero interest rate environment. 2023 on the other hand, was almost a mirror opposite with high interest rates and a tightened Fed monetary policy and the resultant bust in IPO activity. All eyes will be looking towards 2024 for moderation, or something in between the wild swings of the past few years.
IPO Count by Year
Looking at SPAC IPO activity on a month by month basis, you can see that other than in February 2023, which priced six IPOs, activity has remained muted for the past 18 months.
IPO Count by Month
Traditional IPO vs. SPAC IPO Count by Year
Looking at total IPO composition across both SPACs and Traditional IPOs, the slow down in new issuance wasn’t just a SPAC phenomenon. Albeit, Traditional IPOs priced significantly more than SPACs in 2023. In fact, SPACs represented 23% of total IPO issuance this year if we include both Traditional and SPAC IPOs. This represents a reversion to years past when SPACs typically represented between 20-30% of total IPO count. 2020, 2021, and 2022, where SPACs represented the majority of IPO issuance, were anomalies.
However, as noted in previous quarterly reviews, much of the Traditional IPOs priced this year were very small in size. Of the 101 Traditional IPOs priced this year, only 24 of them had a size greater than $100 million. In fact, the median Traditional IPO size was just $10 million.
Source: SPACInsider & IPOInsider. IPOInsider only tracks non-unit traditional IPOs and does not include uplists.
Median IPO Size by Quarter of Pricing
If we look at SPAC IPO size, the medians were significantly smaller in 2023 as well as compared to years past. The median for Q4-2023 was $69 million, but the median for FY-2023 was also $69 million. This is partly due to the reduced number of IPOs coming from the big banks, which tend to price larger sized deals. But, it was also due to the current de-SPAC and valuation environment. I.e., as valuations contracted, so too did SPAC IPO size. Plus, in a high redemption rate environment, a large sized IPO can result in a difficult to manage cap table with more warrants outstanding than actual public shares if the redemption rate is high enough. Bankers and sponsors noted all of the above and adapted.
However, there were some notable larger sized SPACs priced in 2023. Interestingly, the top three largest SPAC IPOs in 2023 were all underwritten by Citigroup. They are: Ares Acquisition Corp. II at $500 million, Agriculture & Natural Solutions Acquisition Corp. at $345 million, and Nabors Energy Transition Corp. II at $305 million.
Note: given the small number of IPOs priced in 2023 per month (some months had just one IPO), grouping by quarter became necessary.
Total Gross IPO Proceeds
Below you can find the total gross IPO proceeds raised broken out by month of IPO. In total, SPACs raised $3.8 billion in total gross proceeds in 2023, with an average IPO size of $124.1 million.
IPO Gross Proceeds by Month
However, to put this into context, in 2017 there were 34 SPAC IPOs priced, a similar number to 2023, but raised a total of $10.0 billion in IPO gross proceeds. This is due to the significantly smaller average IPO size of $124.1 million in 2023 compared to 2017’s $295.5 million.
IPO Gross Proceeds by Year
Number of De-SPAC Closings by Quarter
For the most part, the number of De-SPAC closings has been remarkably stable over the past two years (since January 2022) with the exception of both Q2-2022 and Q2-2023. Interestingly, both exceptions occurred in the second quarter. However, Q2-2022 began the tandem rise in inflation and interest rates and Q2-2023 followed the Silicon Valley bank collapse, both of which were disruptive to the capital markets. This could partially explain the drop off in closings, but the Easter and the Passover holidays, as well as spring school break most likely played a part as well.
Nonetheless, there are still 140 SPACs in the Announced column looking to close. If we take an average number of closings over the past two years (and remove Q2-2023 from the average), we get an average of 27.1 closed De-SPACs per quarter. That means it will take another 5.2 quarters, or roughly 16 months, to clear the backlog of Announced deals. Unfortunately, 96% of the currently Announced SPACs have already needed to extend their timelines. Clearly, the current crop of SPACs are facing both an urgency to De-SPAC or will be headed towards liquidation.
Median De-SPAC Value by Quarter of Completion
Looking at De-SPAC values now, median pro forma equity and enterprise valuations for announced SPAC combinations in Q4-2023 notched a noticeable uptick in size compared to the first three quarters of the year. Median pro forma enterprise values and equity values for Q4-2023 were $461 million and $384 million, respectively, which compares to $330 million and $331 million for Q3-2023. Additionally, while the Screaming Eagle deal with Lionsgate was by far the largest deal SPACs have seen in quite some time at $4.7 billion, keep in mind we are using medians. I.e., even without the Screaming Eagle deal, the numbers still show an upward trend in deal sizes.
Having said that, pro forma equity and enterprise values are still significantly lower in 2023 than what was seen in 2021 as a result of valuations contracting and being reset.
SPAC IPO Day-1 Trading Performance
The IPO trading performance trend for the past 18 months has been a positive one for SPACs. Notably, SPAC IPOs ended the year on a high note with December being the best monthly average day-one performance relative to Net-Asset-Values (NAV) at 0.69%. Albeit, just a hair over August’s 0.68%
To measure IPO performance, we looked at the difference in day-one VWAPS and the % held in trust (NAV) to arrive at a percentage above or below NAV. The worst month since January 2019 was June 2022 at -2.35%, which was followed by zero IPOs in July 2022. However, since that time period SPAC IPO day-one performance has been steadily improving.
Intuitively, we know that big, exciting deals from repeat sponsor teams will always attract interest (and indications). However, the vast majority of deals priced in 2023 YTD have been smaller, non-repeat sponsors, and still the day-one trading performance has markedly improved throughout the year. And while the instinct might be to attribute that performance to SPAC terms built to attract yield investors, and yes that will play a part, but we saw many of those same attractive structures in 2022 when day-one performance was in decline.
Instead, the lack of deal flow has only whet the appetites of investors looking to put their cash to work. Additionally, now that the Fed has indicated they have stopped raising interest rates and “could be” lowering rates in 2024, there could be additional interest in new SPAC issuance. But, as always, Sponsors need to deliver on existing combinations first.
Note: We register SPAC IPOs to be included in a quarter or a month by trading day. For example, if a SPAC prices on March 31st and begins trading on April 1st, the SPAC will be included as a Q2-2023 SPAC.
Full Year 2023 SPAC IPOs by Underwriter
Nine SPACs priced IPOs in the fourth quarter of 2023, which is nearly double Q3-2023’s five SPACs priced. And has been the trend all year, EF Hutton led the way underwriting three of those nine IPOs in Q4. At year end, EF Hutton also leads with nine IPOs priced in 2023, accounting for 29% of all SPAC IPO issuance in 2023.
However, you’ll notice some of the old guard rounding out the top five. Cantor has been underwriting SPACs for at least a decade, and for Citi, Chardan, Maxim, and I-Bankers, they have all been involved in the SPAC market for over 15 years. In a challenging year, significant SPAC experience is a plus and not at all surprising to see these names.
2023 IPO Count by Underwriter
Full Year 2023 SPAC Deal Terminations
Q4-2023 saw 21 SPACs terminate their announced combinations, however, only three of those came in the month of December. All total, 2023 saw 70 deals get terminated and 36, or roughly half, ultimately ended up liquidating the SPAC. Of the remaining 34, 22 are currently searching for a new deal and 12 have already announced a follow up deal.
However, as stated previously, time is a deal killer and of the 34 SPACs that previously terminated but are still alive, 28 of them originally IPO’d in 2021, and one SPAC – Viveon Health Acquisition Corp – IPO’d in December of 2020. Many of these will ultimately end up liquidating specifically because of the time component.
Full Year 2023 SPAC Liquidations
Liquidations were a big part of the 2023 conversation as SPACs worked their way through the excesses of 2020 and 2021. It’s been a sort of cleansing, but one that returns money to investors, plus interest. Liquidations were always meant to protect investors in the event a team couldn’t get a deal done, or if the environment wasn’t conducive to deal-making. And sure enough, that’s exactly what happened.
In total, there were 193 liquidation announcements in 2023. And of those 193 SPACs, 167 of them originally IPO’d in 2021. 14 IPO’d in 2020. SPACs are still not completely through the correction, but to-date 266 of the original 613 IPOs priced in 2021, or 43.4%, have announced a liquidation.
December’s 22 liquidations announcements was clearly significantly more than the prior six months, but there is always an increase in announcements as we near the end of the tax year. Going forward there should be a more muted number of liquidation announcements, but it should be noted that liquidations will continue. There are 78 SPACs that IPO’d in 2021 that are still searching for a combination. Another 94 have announced and are working their way towards a close. However, given the fact that these 172 SPACs are now more than two years old, many will eventually liquidate.
However, the larger point is that the year of “The Great Liquidation” is ending and the vast majority of the liquidation announcements have already happened. But, like an old forest after a fire, it allows for new growth in a healthier environment.
Average Percentage Redeemed
Redemption rates weren’t just challenging this year, they were downright gruesome. December’s average ended the year at 98%, however, many of these deals had previously arranged for non-redemption agreements, forward purchases, or a variety of other backstop mechanisms in order to get these deals over the finish line. However, it is exactly these backstop mechanisms that have also contributed to the high redemption numbers. Meaning, once an outside investor gets a deal at a lower price than the market, there is virtually no reason for public investors to stay in the deal. Hence the high redemptions. It’s a SPAC catch-22…you can’t close a deal with high redemptions, but you’re guaranteed to have high redemptions if you put a backstop in place to protect against high redemptions.
Until the capital markets are in a more risk-friendly environment, coupled with stronger announced deals, unfortunately, backstops are going to continue to be a necessity. The good news is, investors still get back the cash in trust value of the share when they redeem. Yes, high redemption numbers look ugly, but ultimately public shareholders have downside protection.
Maximum Deadline Dates: Searching and Announced SPACs Expiring by Month
The chart above shows the “maximum” deadline date, which assumes all extension months have been taken as a better measure of a SPACs true deadline date. This is the date at which a SPAC must decide whether to ask for an additional extension via shareholder vote, or opt to liquidate.
As you can see, the bubble of SPACs needing to extend keeps rolling. We had a follow-up bubble this summer in August from SPACs that had extended six months prior but needed additional time. And now, we’re seeing another bubble in early 2024, once again, six months later. Although, some of these were from SPACs that had the forethought to extend for a full 12-months one year prior. As you can guess, many of these extended SPACs are from the 2021 IPO vintage, the vast majority of which IPO’d in January, February and March of 2021.
Q1-2024 will be roughly three years from IPO date for the Q1-2021 vintage of IPOs and technically it is an exchange rule (Nasdaq and NYSE) that a SPAC can only trade as a SPAC for 36 months. But, it’s not a hard and fast rule. By and large, the exchanges will give deals a grace period if they are close to wrapping up a transaction, i.e., close to a vote. However, in general, that grace period does not extend for very long. The oldest SPAC to-date is Leisure Acquisition Corp, which took 43.6 months to close. Realistically, many of the 2021 vintage IPOs only have roughly six more months left until they are over 40 months. It’s do or die time. They’re not going to get more than 43.6 months, if that.
Nevertheless, of the 267 active SPACs (127 Searching / 140 Announced), 234 of them, or 87.6%, have already taken at least one extension. If we break out the Searching and Announced categories, we see that 78.7% of the Searching SPACs have extended, while a whopping 95.7% of the Announced SPACs have extended their deadlines.
Average Time to Complete a Transaction
The below graph is grouped by quarter since some months were lighter on closings than others. Nonetheless, the results are clear. By Q4-2023, the time from IPO to closing was 27.9 months. For reference, at the end of 2021, it took teams an average of 11.7 months to close. Fast forward two years, and it is taking teams 2.4x longer.
The only other time period that came close was Q3-2020, but that was a result of the initial Covid lockdown. Back in March of 2020, deals were effectively put on pause through roughly April as everyone took stock of the situation and how it affected deals that were announced or about to be announced.
Serial SPAC Sponsors
In 2021, we debuted our Serial Sponsor league table, which keeps a running ranking of sponsor teams that have completed at least two deals based on the average price performance of their De-SPACs (split-adjusted).
By the end of 2023, market prices had bounced back to a degree, but it wasn’t evenly distributed across all industries. As a result, the serial sponsor rankings have somewhat been shaken up and we have a new leaderboard. But, you’ll notice that the typically noted and experienced SPAC teams are still on the list. These are the teams with a deep well of SPAC history and clearly understand the vehicle. The presumption being that their experience can help them better navigate challenging SPAC markets. However, this performance is relative. The 2022 and 2023 rise in interest rates spared no one, including the top ranked teams. Their performance was just better than the field.
However, also keep in mind that this is an imperfect way to rank teams since we are comparing teams with five or more deals completed against teams with just two. It’s a lot easier to rank with a high average with just two deals (especially if one is trading poorly) than it is with five or more deals. However, this league table does have the ability to filter based on deal count if you choose.
Nevertheless, the GS Acquisition team currently leads the rankings overall with an average share price of their De-SPACs of $29.14. The value includes both Vertiv (NYSE: VRT) which is trading around $48.00 and is a technology infrastructure play (hello, AI!), as well as Mirion Technologies, Inc. (NYSE: MIR), which is trading around $10.50 and provides radiation detection, measurement, analysis, and monitoring products and services globally.
However, the larger point being, there are good deals getting done and, as always, experience counts.
This list is only showing the Top 20, but you can see all the teams (and filter by deal count) HERE.
Summary
For the capital markets, it has been a two year hangover of the excesses of a ZIRP environment. Except the pain has been especially acute for SPACs due to the time component to their transactions. Many sponsors have tried to ride it out by using extensions, but as we’ve seen with the maximum deadline dates, we’re nearing the end one way or another – close or liquidation.
However, many of the old guard SPAC sponsors that liquidated early and have sat out the past year or so, are anticipating (and welcoming) a significantly thinned-out herd. Going forward, and with less competition and an improving market, it would not at all be surprising to see a re-entrance of experienced and/or institutionally back sponsor teams pricing IPOs in 2024. But, most likely not until at least Q2.
Also consider that the traditional IPO (when that market comes back too) will not be available for many companies in the sub $2 billion range companies. The banks, for the most part, are only interested in IPO’ing significantly larger and more mature companies.
There is an opportunity for SPACs to bring public some quality companies in 2024, but they’re going to have to fight public perception of the product. And the teams that will be able to do that will be the ones with significant name recognition that can offer tangible help in shepherding a company through the going-public process. SPACs got a taste of that recently with the Screaming Eagle/Lionsgate deal, which will be a very important litmus test going forward. Interestingly, the Eagle team’s deal with DraftKings and Diamond Eagle, was also a leading SPAC market indicator when it closed in April 2020, kicking off the SPAC boom.
However, any improvement in the SPAC market going forward will look nothing like 2020/2021. Instead, it will first take a number of successful deals to overcome a lack of confidence in the SPAC market, but even then, the market is too radically different to inspire sponsors to once again IPO four deals at a time.
But the point being that the SPAC market will come back. There needs to be an alternative to the traditional IPO, especially if the banks are only reserving traditional IPOs for large, mature companies. The number of public companies has been dwindling and there needs to be an effective route for small and mid-sized companies.
But the key will be moderation. As stated at the beginning of this report, SPACs will be looking to 2024 for their Goldilocks year. SPACs were way too hot, then too cold, but maybe 2024 will be just right.
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