Many such companies intended to prioritize rapid expansion over near-term profitability. Prevailing economic conditions, while challenging even for many mature companies, are especially vexing for the early-stage, high-growth companies that typified the recent SPAC boom. ![]() ![]() Why Struggling De-SPACed Companies Are Increasingly Seeking Chapter 11 Protection Redemption rates soared in 2022 and have remained elevated in 2023. Where the deal went forward, that often resulted in less available capital. When the SPAC presents a de-SPAC merger to its shareholders for approval, they have the option to redeem - cash out - their shares at the full IPO price, and many exercised that right. 4 In addition, it became harder for SPACs to complete mergers with operating businesses as investors became more risk averse. The number of de-SPAC transactions also declined: Just 100 de-SPAC mergers closed in 2022, compared to 200 in 2021. ![]() The SPAC IPO market began to wane in late 2021 and contracted further in 2022. An unprecedented 34% of all 2021 going-public transactions took the form of de-SPAC mergers. 2 That, in turn, precipitated a wave of de-SPAC transactions as those SPACs sought out and combined with operating businesses. Most of today’s de-SPACed companies are the result of the boom in SPAC fundraisings in 20, when there were 861 SPAC initial public offerings (IPOs), accounting for more than half of all IPOs in both years. And investors in distressed de-SPACed companies should diligently monitor the company and understand the unique risks and opportunities a Chapter 11 proceeding may present. What that demonstrates is that boards, officers, stockholders and other stakeholders, as well as potential investors and acquirers, should regard Chapter 11 as a strategic option to rehabilitate a potentially distressed de-SPACed company. Of the de-SPACed companies that have filed for bankruptcy thus far, most have successfully completed, or are pursuing, a reorganization or going-concern sale that will preserve much of the business. But this flight to safety was particularly damaging to young, high-growth companies that required substantial additional capital to achieve profitability, forcing some into bankruptcy.īankruptcy, though, is not necessarily the end of the road for a struggling de-SPACed company. In those sectors, even marquee names have suffered as macroeconomic uncertainty persists and potential sources of capital retreat to government bonds and other safe assets. Most de-SPACed companies that have filed for bankruptcy over the past year are early-stage technology or biotechnology companies strained by growing economic headwinds. Some press reports frame these bankruptcies as evidence that the 2020-21 SPAC boom was a “fad” driven by “hype” and “speculati,” 1 but the reality is more complicated. ![]() The stocks of many de-SPACed businesses - companies formed by the merger of a SPAC with an operating business - are trading well below the SPACs’ original IPO price, and a number have filed for bankruptcy. The contraction of the market for special purpose acquisition companies (SPACs) and the recent challenges de-SPACed companies have encountered have attracted considerable press attention.
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