SPACs are back, thanks to Wall Street’s mega-IPO frenzy

SPACs are making a comeback.

A flood of expected blockbuster IPOs this year is creating an ⁠opening ⁠for SPACs as smaller companies seek to capitalize on a favorable ⁠market without having to compete for investor attention against the likes of SpaceX, Anthropic and OpenAI.

That is giving blank-check companies renewed footing after years of upheaval, ​with a more mature SPAC market emerging at a time when mega-IPOs are expected to command an outsized share of investor capital and attention, analysts, market experts and industry insiders told Reuters.

“A parade of mega-IPOs could make life harder for ‌smaller issuers with the giant names soaking up headlines, analyst ‌attention, institutional bandwidth, and a meaningful share of available capital,” said Michael Ashley Schulman, a partner at financial advisers Cerity Partners. “A SPAC could open a quick side entrance.”

Special-purpose acquisition companies, or SPACs, allow companies to go public without raising ⁠fresh capital from investors. They ⁠had been written off after a pandemic-era boom during which hundreds of blank-check companies rushed to market. Many of those companies ​later struggled to find acquisition targets or delivered poor returns after completing mergers.

More SPAC deals are getting done. Globally, 44 SPAC mergers have been announced this year, worth $36.9 billion, up from 33 deals worth $15 billion at this point last year, Dealogic data showed.

And there is plenty of dry powder. As of June 17, some 359 SPACs are sitting on $56.8 billion in capital that has already been raised, and is just waiting to be deployed, according to data compiled by SPAC ​Research.

The transactions allow private companies to reach public markets by merging with a listed shell company rather than pursuing a traditional IPO. The most likely candidates for SPAC deals are energy, defense, ⁠critical ⁠minerals, nuclear, space, and crypto sectors, along with ⁠smaller international firms seeking access to U.S. capital ​markets, three experts said.

Elon Musk’s SpaceX kicked off the mega-IPO wave with a record-breaking IPO last week that valued it at roughly $1.8 trillion. AI rivals Anthropic and OpenAI have also confidentially ​filed for U.S. listings that are expected later this year, ⁠setting the stage for one of the busiest periods for marquee offerings in recent memory.

Michelle Gasaway, a partner at the capital markets practice of law firm Skadden, Arps, said there is more interest in SPAC transactions today than two years ago. She cited the flexibility in timing, and the ease in negotiating a valuation instead of chancing it with everyday investors on the public markets. That all makes it “appealing for companies that do not want to compete for attention in a crowded IPO market,” she said.

As Wall Street prepares for some of the largest IPOs in history, market experts warn that some investors may wait on the sidelines for marquee offerings rather than allocate capital ⁠to smaller deals.

“I do expect some companies that may have considered a traditional IPO to look at a SPAC merger instead,” said IPOX Research Associate Lukas ⁠Muehlbauer.