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freenewstoday · 3 years

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New Post has been published on https://freenews.today/2021/03/04/spacs-are-becoming-less-of-a-sure-thing-as-the-deals-get-stranger-shares-roll-over/

SPACs are becoming less of a sure thing as the deals get stranger, shares roll over

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., January 31, 2018.

Brendan McDermid | Reuters

Things are getting weird in the sizzling SPAC market. A leisure SPAC is now doing a biotech deal, while a cannabis blank-check company ended up merging with a space company.

Sponsors are rushing to get their deals done in an increasingly crowded space as more than 370 U.S. blank-check companies with over $118 billion in capital are seeking to make a match, according to data from SPAC Research. Nearly 60 SPACs identified their merger targets in February alone, the biggest month ever, the data said.

“They are bringing lower and lower quality companies public,” said Ross Mayfield, investment strategy analyst at Baird. “They run up against the capacity of reasonable quality companies especially in the niches that are popular.”

Faced with intense competition, deadline pressure and a volatile market, some SPACs had to settle for less ideal targets, and in some cases, throw their entire blueprint out the window. And the rally in red-hot SPAC stocks has started to roll over as shareholders scramble to redeem when deals turn out to be disappointing.

The proprietary CNBC SPAC 50 index, which tracks the 50 largest U.S.-based pre-merger blank-check deals by market cap, dropped more than 15% in the past two weeks, wiping out all of its 2021 gains. The CNBC SPAC Post Deal Index, which is comprised of the largest SPACs that have come to market and announced a target, tumbled a similar amount and is now down 10% on the year.

Last month, Leisure Acquisition Corp., a SPAC that was initially targeting a leisure company as its name suggests, announced a $200 million deal with Ensysce Biosciences, a biopharmaceutical company fighting drug overdoses. Stable Road Acquisition Corp., a cannabis SPAC, also did a major pivot and is closing a deal with space company Momentus.

While one or two cases don’t make a trend, it did raise concerns that the quality of the SPACs could deteriorate going forward just given the sheer number of deals outstanding. SPACs also compete with private equity firms, many of which still have a lot of dry powder to deploy.

“There could be no deal, or there could be a deal with a company that is not necessarily warranted of being a public company,” said Sylvia Jablonski, chief investment officer at Defiance ETFs, which launched the first ever SPAC ETF (SPAK) in September. “If time has gone by and they haven’t done one, there is a chance that they could just do a bad merger to complete it because now all this time, energy and investment has gone into it.”

SPAC stocks rolling over

The SPAC trade, which once seemed like it could only go up, may have started to come undone as more of the SPACs’ chosen takeovers flop. The speculative areas of the market also tend to get hit hard when volatility spikes.

“The sharp end of the stick, which is the IPO space, is going to feel more pain when you have a risk-off move than other areas of the market,” said Justin Lenarcic, Wells Fargo, senior global alternative investment strategist.

SPACs stand for special purpose acquisition companies, which raise capital in an initial public offering and use the cash to merge with a private company and take it public, usually within two years. Excited investors piled into shares of these empty corporate shells hoping they would hit a home run.

Some of the high-profile deals are trading more than 40% above their IPO price, including Bill Ackman’s $4 billion Pershing Square Tontine Holdings and two of Chamath Palihapitiya’s SPACs.

“Some people get pulled into a bit of complacency when they hear that SPACs are risk-free because you have the ability to redeem your interest if you don’t like the deal … but you also have to realize that only works if you invest early on,” Lenarcic said. “It really depends on where in the lifecycle of the SPAC you are investing.”

Many retail investors buy SPACs in the secondary market, which means they most likely would miss out on the early pop in common shares as well as the benefits associated with warrants. Meanwhile, for buy-and-hold investors who only get in after a deal is struck, they almost always lose money.

‘Unsustainable’

In terms of SPAC issuance, there’s no signs of it slowing down. The funds raised in the first two months of 2021 already rival the capital from a record full year of 2020 — $68.5 billion year to date versus $83.4 billion last year, according to SPAC Research.

“The blistering pace of issuance is likely unsustainable,” David Kostin, head of U.S. equity strategy at Goldman Sachs, said in a note. “SPACs could generate more than $700 billion in acquisition activity in the next two years.”

Some recent new issuance is raising eyebrows on Wall Street. Last month, a SPAC named “Just Another Acquisition Corp.” was filed with the Securities and Exchange Commission to raise $60 million for a deal in an unspecified sector. There’s also “Do It Again Corp.” this week, a Delaware-based SPAC that could target restaurants and retail brands, according to a filing.

“There could be a growing element of FOMO [fear of missing out] here,” Lenarcic said. “I do think you need to be cautious. You certainly need to understand that not all SPACs are created equal, certainly not all sponsors are equal and not all deals are going to work out.”

— CNBC’s Gina Francolla contributed reporting.

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#Breaking News: Business #Breaking News: Investing #Breaking News: Markets #business news #CNBC SPAC 50 Index #CNBC SPAC Post Deal #Defiance Next Gen SPAC Derived ETF #Investment strategy #Leisure Acquisition Corp #Markets #Pershing Square Tontine Holdings Ltd #SPAC and New Issue ETF #Stable Road Acquisition Corp #Stock markets #Wall Street

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orbemnews · 3 years

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The SPAC boom has 'screeched to a halt.' That may be good thing What’s happening: Billionaires, celebrities and athletes have raced to create special-purpose acquisition companies, or SPACs, over the past six months. These “blank check” firms, which raise money from investors and then go hunting for takeover targets, have been flagged as a sign of overexcitement on Wall Street. “Over 250 SPACs are on file so we’re not calling the end, but investor enthusiasm for this vehicle is waning,” cofounder Bill Smith told clients. In a research note published last week, Goldman Sachs analysts noted that issuance has “screeched to a halt” in April, with only six new SPACs created so far in the second quarter. This time last quarter, 55 fresh SPACs had made their debut. The investment bank, which called the slowdown “warranted,” said recent announcements from regulators have hurt sentiment. In late March, the Securities and Exchange Commission issued a statement expressing concerns over disclosures and governance related to SPACs. Earlier this month, the agency indicated it would tighten some accounting standards. The mood has been tough for shares of SPACs that have already listed. Like other risky assets, they’ve been hit by turmoil in the bond market, where yields are rising thanks to inflation concerns. See here: The Defiance Next Gen SPAC Derived ETF, which tracks more than 200 US-listed SPACs that are both pre- and post-acquisition, is down more than 15% in the past two months. The S&P 500 has increased more than 9% over the same period. That could hurt individual investors that have piled in this year with hopes of cashing in on the craze. Short selling, where investors place bets that pay out if stocks fall, has increased as SPAC shares have suffered, according to data from S3 Partners. “We are seeing active short selling … as stock prices in the sector decline,” analyst Ihor Dusaniwsky said in a recent research note. Big picture: The massive wave of SPACs has been fueled by low interest rates and stimulus spending. It has also triggered alarm bells among market watchers, and many had been stressing that a break was needed. “There has been so much SPAC activity that the market was getting indigestion,” Duncan Davidson, general partner with venture capital fund Bullpen Capital, recently told my CNN Business colleague Paul R. La Monica. “We need a pause.” Even if the creation of new SPACs stays light, the hundreds already in existence will continue to have a serious impact on the market. Goldman Sachs estimates that SPACs could drive a $900 billion wave of mergers and acquisitions in the next 24 months, with $129 billion of capital currently searching for target companies. Corporate earnings are coming in even better than expected A quarter of companies in the S&P 500 have reported earnings for the first three months of 2021 — and the results have come in even better than Wall Street was expecting. The latest: So far, 84% of companies have reported profits that beat forecasts, according to FactSet. That could make this one of the top quarters since analysts at the research firm started tracking this metric in 2008. Earnings growth to date has come in at nearly 34%, the highest rate since the middle of 2010. Analysts expect double-digit growth to persist for the remainder of 2021. Companies are helped by comparisons to an awful 2020, when revenue and profit plunged as the pandemic battered demand. But the economic recovery is also a major factor. “The bar was higher coming into this earnings season and you have to hand it to corporate America, they have cleared that high bar with relative ease,” LPL Financial Chief Investment Officer Burt White said in a recent note to clients. Investor insight: FactSet’s John Butters notes that investors are offering reduced rewards for good performance. Companies that have beat estimates are seeing shares increase by an average 0.4%, as opposed to 0.8%. But there are hopes that a spate of Big Tech earnings this week could give markets a boost, especially as discussions of higher capital gains taxes on the wealthy rattle Wall Street. Google parent Alphabet (GOOGL), Microsoft (MSFT), Apple (AAPL), Facebook (FB) and Amazon (AMZN) are all due to report. These companies are among the biggest stocks in major indexes. Prepare to pay sticker price for a car Car dealers have only a fraction of the vehicles, new and used, that would typically pack lots. That’s helping send prices to record levels, my CNN Business colleague Chris Isidore reports. The average price of a new car was $37,200 in the first three months of the year, according to JD Power — up 8.4% from the same period just a year ago. About half of car buyers are paying within 5% of the sticker price, according to JD Power stats, while some are paying even more. Meanwhile, wholesale prices for used cars sold at auction are up 26% since the start of this year. Retail used car prices are up 7% in the same period. “That puts wholesale used prices at the highest level they’ve ever been,” David Paris of JD Power said. “And we are seeing used retail prices accelerating rapidly.” It’s a 180-degree turnaround from a year ago, when many car dealerships were closed by the pandemic or limited to providing service and maintenance. Massive job losses and a shift to working from home caused a 30% plunge in auto sales, the biggest quarterly decline since the Great Recession. Now sales are booming again — but auto plants around the globe are closed or running at reduced capacity due to a computer chip shortage. New car production in North America is down about 3.4 million vehicles in the first three months of this year, according to Cox Automotive. The used car market is just as tight, with some measures of supply and demand in the sector showing the greatest scarcity on record. That can only mean one thing: Consumers have to start paying more. Up next Albertsons reports results before US markets open. Tesla (TSLA) follows after the close. Also today: US durable goods orders for March post at 8:30 a.m. ET. Coming tomorrow: Earnings from 3M (MMM), BP (BP), Alphabet, Microsoft and Starbucks (SBUX). Source link Orbem News #boom #Good #halt #investing #Premarketstocks:TheSPACboomhas'screechedtoahalt.'Thatmaybegoodthing-CNN #screeched #SPAC

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dipulb3 · 3 years

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The SPAC boom has 'screeched to a halt.' That may be good thing

New Post has been published on https://appradab.com/the-spac-boom-has-screeched-to-a-halt-that-may-be-good-thing/

The SPAC boom has 'screeched to a halt.' That may be good thing

What’s happening: Billionaires, celebrities and athletes have raced to create special-purpose acquisition companies, or SPACs, over the past six months. These “blank check” firms, which raise money from investors and then go hunting for takeover targets, have been flagged as a sign of overexcitement on Wall Street.

“Over 250 SPACs are on file so we’re not calling the end, but investor enthusiasm for this vehicle is waning,” cofounder Bill Smith told clients.

In a research note published last week, Goldman Sachs analysts noted that issuance has “screeched to a halt” in April, with only six new SPACs created so far in the second quarter. This time last quarter, 55 fresh SPACs had made their debut.

The investment bank, which called the slowdown “warranted,” said recent announcements from regulators have hurt sentiment. In late March, the Securities and Exchange Commission issued a statement expressing concerns over disclosures and governance related to SPACs. Earlier this month, the agency indicated it would tighten some accounting standards.

The mood has been tough for shares of SPACs that have already listed. Like other risky assets, they’ve been hit by turmoil in the bond market, where yields are rising thanks to inflation concerns.

See here: The Defiance Next Gen SPAC Derived ETF, which tracks more than 200 US-listed SPACs that are both pre- and post-acquisition, is down more than 15% in the past two months. The S&P 500 has increased more than 9% over the same period.

That could hurt individual investors that have piled in this year with hopes of cashing in on the craze. Short selling, where investors place bets that pay out if stocks fall, has increased as SPAC shares have suffered, according to data from S3 Partners.

“We are seeing active short selling … as stock prices in the sector decline,” analyst Ihor Dusaniwsky said in a recent research note.

Big picture: The massive wave of SPACs has been fueled by low interest rates and stimulus spending. It has also triggered alarm bells among market watchers, and many had been stressing that a break was needed.

“There has been so much SPAC activity that the market was getting indigestion,” Duncan Davidson, general partner with venture capital fund Bullpen Capital, recently told my Appradab Business colleague Paul R. La Monica. “We need a pause.”

Even if the creation of new SPACs stays light, the hundreds already in existence will continue to have a serious impact on the market.

Goldman Sachs estimates that SPACs could drive a $900 billion wave of mergers and acquisitions in the next 24 months, with $129 billion of capital currently searching for target companies.

Corporate earnings are coming in even better than expected

A quarter of companies in the S&P 500 have reported earnings for the first three months of 2021 — and the results have come in even better than Wall Street was expecting.

The latest: So far, 84% of companies have reported profits that beat forecasts, according to FactSet. That could make this one of the top quarters since analysts at the research firm started tracking this metric in 2008.

Earnings growth to date has come in at nearly 34%, the highest rate since the middle of 2010. Analysts expect double-digit growth to persist for the remainder of 2021.

Companies are helped by comparisons to an awful 2020, when revenue and profit plunged as the pandemic battered demand. But the economic recovery is also a major factor.

“The bar was higher coming into this earnings season and you have to hand it to corporate America, they have cleared that high bar with relative ease,” LPL Financial Chief Investment Officer Burt White said in a recent note to clients.

Investor insight: FactSet’s John Butters notes that investors are offering reduced rewards for good performance. Companies that have beat estimates are seeing shares increase by an average 0.4%, as opposed to 0.8%.

But there are hopes that a spate of Big Tech earnings this week could give markets a boost, especially as discussions of higher capital gains taxes on the wealthy rattle Wall Street.

Google parent Alphabet (GOOGL), Microsoft (MSFT), Apple (AAPL), Facebook (FB) and Amazon (AMZN) are all due to report. These companies are among the biggest stocks in major indexes.

Prepare to pay sticker price for a car

Car dealers have only a fraction of the vehicles, new and used, that would typically pack lots. That’s helping send prices to record levels, my Appradab Business colleague Chris Isidore reports.

The average price of a new car was $37,200 in the first three months of the year, according to JD Power — up 8.4% from the same period just a year ago.

About half of car buyers are paying within 5% of the sticker price, according to JD Power stats, while some are paying even more. Meanwhile, wholesale prices for used cars sold at auction are up 26% since the start of this year. Retail used car prices are up 7% in the same period.

“That puts wholesale used prices at the highest level they’ve ever been,” David Paris of JD Power said. “And we are seeing used retail prices accelerating rapidly.”

It’s a 180-degree turnaround from a year ago, when many car dealerships were closed by the pandemic or limited to providing service and maintenance. Massive job losses and a shift to working from home caused a 30% plunge in auto sales, the biggest quarterly decline since the Great Recession. Now sales are booming again — but auto plants around the globe are closed or running at reduced capacity due to a computer chip shortage.

New car production in North America is down about 3.4 million vehicles in the first three months of this year, according to Cox Automotive. The used car market is just as tight, with some measures of supply and demand in the sector showing the greatest scarcity on record.

That can only mean one thing: Consumers have to start paying more.

Up next

Albertsons reports results before US markets open. Tesla (TSLA) follows after the close.

Also today: US durable goods orders for March post at 8:30 a.m. ET.

Coming tomorrow: Earnings from 3M (MMM), BP (BP), Alphabet, Microsoft and Starbucks (SBUX).

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