More companies went public via special purpose acquisition companies, or SPACs, during 2020 and 2021 than in all previous years combined. Also known as blank-check companies, SPACs brought many high-profile companies to the public markets, including Lucid Motors (NASDAQ: LCID) and DraftKings (NASDAQ: DKNG), as well as many early-stage businesses that likely wouldn't have gone public without the SPAC route.
During this massive SPAC boom, no sponsor of blank-check companies has received more attention than Chamath Palihapitiya.
Palihapitiya is widely credited with starting the SPAC boom when he took Virgin Galactic (NYSE: SPCE) public in 2019. Other Palihapitiya-backed SPACs were responsible for bringing Opendoor (NASDAQ: OPEN), Clover Health (NASDAQ: CLOV), SoFi (NASDAQ: SOFI), ProKidney (NASDAQ: PROK), and Akili Health (NASDAQ: AKLI) public. And that's not to mention the numerous SPACs Palihapitiya didn't sponsor but funded through private investment rounds.
Chamath is throwing in the towel
In a letter to his social media followers, Palihapitiya announced that his investment firm, Social Capital Hedosophia Holdings, had begun the process of winding down its two remaining SPACs. These are formally known as Social Capital Hedosophia Holdings IV (NYSE: IPOD) and Social Capital Hedosophia Holdings VI (NYSE: IPOF), but many investors simply know them as IPOD and IPOF. Palihapitiya has referred to the SPAC process as "IPO 2.0," and his SPACs had ticker symbols that reflected this (IPOA, IPOB, etc.).
He goes on to say that although there were more than 100 potential merger targets evaluated, in the end none of them panned out, either due to the lack of an agreement on valuation or the current market volatility.
In U.S. Security and Exchange Commission (SEC) filings, Palihapitiya confirmed the process of dissolving these two SPACs is underway. Shares of both SPACs will cease trading on Oct. 14 upon the close of the market, and they both expect to redeem the common shares by Oct. 17.
Based on the amount of money in each SPAC's trust account, the distribution amount is expected to be $10.01 per share (they both raised $10 per share in their respective 2020 IPOs). Investors who own shares don't need to take any action to receive their money; the shares will simply cease to exist in their brokerage accounts, and $10.01 per share in cash will arrive at the same time. And unfortunately, any warrants investors own in connection to these two SPACs will expire worthless.
It's important to note that Chamath's biotech SPAC partnership that has thus far taken ProKidney and Akili Health public, still has two active SPACs in the market, and they are still searching for merger targets.
Is this the end of the SPAC boom?
There's a solid argument to be made that the SPAC boom ended several months ago as the general appetite for speculation dried up. Several high-profile SPAC deals were cancelled due to market conditions, and others (such as Bill Ackman's $4 billion mega-SPAC Pershing Square Tontine Holdings) have already dissolved and given investors their money back.
However, there were many investors holding out hope that Palihapitiya, who had been often referred to as the "SPAC King," especially in the earlier days of the SPAC boom, would deliver merger targets for both IPOD and IPOF. As mentioned, many investors believe the SPAC boom started because of Chamath, and the news that he's decided to throw in the towel on two highly anticipated blank-check companies certainly feels like the unofficial end of an era.
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Matthew Frankel, CFP® has positions in Lucid Group, Inc., SoFi Technologies, Inc., Social Capital Hedosophia Holdings Corp. IV, and Social Capital Hedosophia Holdings Corp. VI and has the following options: long October 2022 $10 calls on Social Capital Hedosophia Holdings Corp. IV and long October 2022 $10 calls on Social Capital Hedosophia Holdings Corp. VI. The Motley Fool has positions in and recommends Opendoor Technologies Inc. The Motley Fool has a disclosure policy.
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