Nine health companies, primarily drug and medical device makers, have inked deals with special purpose acquisition companies (SPACs) to go public since the beginning of April. Mergers with health companies represent 40% of the overall SPAC deals announced in the period. The rising count of health companies merging with blank check entities indicates that some SPACs are opting to merge with target companies outside their areas of expertise to force a deal rather than return the capital to sponsors. Jay Ritter, a professor of finance at the University of Florida, shares a similar viewpoint adding, "As the deadline approaches, the sponsors are saying a deal is better than no deal, even if it's something where they don't have an obvious expertise in the industry."
SPACs typically have two years to merge with a target company, failing which they must return cash to sponsors. Pitchbook's analysis from February 2023 shows that out of the 761 blank check entities listed in 2021, 467 could merge with target companies. Bloomberg estimates that 250 SPACs are nearing their liquidation date this year despite 70 SPAC mergers already announced so far. Biotech firm EnGene and heart attack prevention device maker Avertix Medical are the most recent companies to agree to merge with SPACs. Their respective SPACs signed the deal less than six weeks before their liquidation deadline. OceanTech Acquisitions I Corp. is set to merge with regenerative medicine company Regentis Biomaterials after its two initial deals fell through. The firm initially intended to merge with firms in the leisure marine and yachting industries. One of the main reasons why SPACs want to avoid liquidation is the high costs associated with setting up the ventures. Per Bloomberg, SPAC set-up costs totaled more than $1.5B last year. Several sponsors are wary of the risks associated with forcing a deal through. Hence, nearly 230 sponsors have opted to liquidate the venture rather than push a deal through. Between the start of December 2022 and the end of January 2023, nearly 100 SPACs already liquidated their ventures and returned cash to sponsors. The popularity of SPAC listings waned in recent times following the strict regulatory scrutiny measures imposed by the SEC. Additionally, the stock market performance of companies that went public via SPAC mergers has been lackluster, further denting investors' confidence in SPACs. In 2022, the De-SPAC Index, which measures the stock market performance of companies listed through a SPAC merger, slumped by 75%. The De-SPAC Index had dropped by 45% the year before.
Due to the underwhelming performance of SPAC IPOs, SPAC investment levels have returned to pre-pandemic levels. 13 SPACs raised $1.5B from investors this year, with Ares Management raking in $500M from sponsors for its blank check entity Ares Acquisition Corp. II. By this year's end, funding for SPACs is expected to fall below $163B raised by 600 SPACs in 2021. |
