Investors in empty check vehicles are set to boost liquidity by up to $75 billion over the next six months as special-purpose buybacks take to the market at the time of the listing boom. forced to return their cash.
The surging Spac liquidation is expected to remove some of the last remnants of one of the most extreme market frenzys of recent years, while providing a welcome cash boost to many. investors have suffered losses during this year’s broad market downturn.
The purpose of Spac is to use the proceeds of a stock exchange listing to hunt for private companies to go public, but most have a two-year deadline to close an acquisition before as they have to return all raised funds to investors if they do not seek expansion.
Worth nearly 75 billion dollars Distance According to data from Spac Research, that will expire between now and the end of February, with another $36 billion due in March.
“It’s optimistic for the market, overall the money will go back to the stock market because it’s positive,” said a senior banker who has helped short-check firms raise cash and find deals. because there are no Spaces to fall back on.
Investors have invested more than $250 billion in white-check companies since the start of 2020, but enthusiasm has waned after a series of major disappointments and crackdowns by regulators.
Hedge funds were among the biggest investors in Spac’s IPOs. Some invest through multi-strategy vehicles, while others set up dedicated funds. A senior prime broker said money invested through these funds has the potential to be returned to limited partners such as pension funds and university endowments. Meanwhile, multi-strategic funds will be able to redeploy cash into other areas — or respond to buyback requests from backers who have been spooked by losses elsewhere.
The average hedge fund has outperformed the S&P 500 index this year but performance still averaged 6.8% in the second quarter, according to Citco, with investors netting $7.8 billion .
“The no-deal Spacs have performed better than most macro and [quant] strategies this year,” the broker said. “We’re seeing an uptick around investor acquisitions, so this could help support some of those.”
“They would be happy to get the cash and glad they didn’t put it to work in the tech sector,” said one capital markets attorney. “The Spac Mandatory Savings Account is possibly the luckiest investment many of them have ever made.”
Some opportunities for investors may come earlier than expected because they want to avoid being affected by the new tax regulations.
The majority of Spac is based in the Cayman Islands, a Caribbean tax haven, but a few are incorporated in the US state of Delaware. Lawyers are concerned that the wording of a new tax on share buyback could also apply to currency exchange from Delaware-based Spacs, providing an added incentive to redeem any funds before the tax goes into effect in January.
Those who know they won’t find an agreement can call a special shareholder meeting to settle it soon. Others may require investors more time to merge online, such as Digital World Acquisition Corporation, consolidation plan with Donald Trump’s Trump Media & Technology Corporation, but doing so gives investors the opportunity to buy back their shares.
Even those who reach an agreement may have to return most of their IPO proceeds to shareholders who may choose to buy back their shares instead of receiving shares in the newly incorporated company.
According to Spac Research, the average acquisition rate of closed mergers over the past three months was 91.7%.
Mark Brod, a partner at the law firm Simpson Thacher, said: “Many investors prefer to buy back and get back 100 cents of a dollar while holding their warrants because of their significantly lower risk appetite compared to their own. before”.
Brod added that, thanks to the recent stock market slump, even investors who approve a Spac merger may choose to get their cash back in the expectation that they can then buy the combined shares cheaply. than on the secondary market.