Big SPAC unwind has consequences for few



NEW YORK (Reuters Breakingviews) -Chamath Palihapitiya pushed the limits of the blank-check boom. Now he’s marking its end. The investor who personified the frenzy in special-purpose acquisition companies announced on Tuesday he’s winding down two of his vehicles after failing to come up with a deal. If his shortcomings were the worst of the SPAC fallout, it isn't so bad. 

The extravaganza had all the hallmarks of a market working as it shouldn't. SPACs encouraged investors to buy shares in shell companies and then approve deals with little oversight of what they bought, or at what price. Misaligned incentives allowed managers like Palihapitiya to line their pockets. Shares in four of the six companies which completed mergers with SPACs he sponsored – space travel firm Virgin Galactic, real estate platform Opendoor Technologies, healthcare technology firm Clover Health Investments, and financial services platform SoFi Technologies - are down between nearly 60% and 80% over the past year, versus an 11% decline in the S&P 500 Index.

The SPAC boom was part of the stock market excess inflated by government stimulus and ultra-low interest rates following the global pandemic. With borrowing costs rising the vehicles have lost their shine. The silver lining is that apart from losses suffered by some SPAC investors and shareholders of companies that went public via blank checks, there’s little by way of systemic consequence. (By Lauren Silva Laughlin)

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(Editing by Peter Thal Larsen and Sharon Lam)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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