The SPAC market is turning bleaker by the day as investors head for the exits amid rising scrutiny, pushing the majority of deals below their IPO price. A total of 125 blank-check deals have closed their mergers in 2021, and 58% of them are currently trading below $10 and more than a third of them had over 50% public shares redeemed, according to a CNBC analysis of SPAC Research data. SPACs are typically priced at a nominal $10 per unit, and unlike a traditional IPO, they are not priced based on a valuation of an existing business. "The SPAC boom has ended," Paul Hickey, co-founder of Bespoke Investment Group, said in a note. "With so many deal teams chasing targets, the sorts of acquisitions now being made are far less attractive, and price declines for post-transaction SPAC companies have made the hype train harder to keep rolling." SPACs stand for 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. The worst-performing SPAC this year was Ensysce Biosciences, a biopharmaceutical company fighting drug overdoses, whose stock is trading just about $3 a share . CNBC previously reported this company merged with Leisure Acquisition Corp ., a SPAC that was initially targeting a leisure company but pivoted its focus as deal-making environment became competitive. Many on Wall Street saw the sharp reversal coming as the industry had grown too far, too fast in a market full of speculative activity. During the record first quarter, the SPAC market saw 89 new deals with $28.6 billion capital raised per month, and now the number tumbled to just 9 deals a month with $1.6 billion funds since April, according to data from Bespoke Investment Group. "The boom in SPAC issuance was never sustainable, and it appears that financial reality is setting in," Hickey said. The cooldown coincided with heightened oversight from the Securities and Exchange Commission. Regulators have repeatedly warned investors of underlying risks in these deals, while demanding better disclosures and tighter accounting rules from blank-check deals. In July, the SEC settled with Momentus, a space company that was taken public by SPAC Stable Road Acquisition, after charging the parties involved for misleading disclosures ahead of the merger. CNBC previously reported Stable Road was originally seeking to merge with a cannabis company. Bill Ackman's troubled SPAC got sued last month as plaintiffs alleged the blank-check company promised "staggering compensation" to directors and asking that the entity's special status be revoked. Meanwhile, SPACs are getting hit by a rising number of class-actions as shareholders seek to hold deal leaders accountable amid sharp declines in the stock price. — With assistance from Nate Rattner.
Traders work on the floor of the New York Stock Exchange (NYSE) on Friday.
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The SPAC market is turning bleaker by the day as investors head for the exits amid rising scrutiny, pushing the majority of deals below their IPO price.