The Dark Side Of SPACs

More than 300 companies went public via mergers with SPACs over the past two years, but many of these listings proved to be problematic.

Special Purpose Acquisition Companies (SPACs) were all the rage only a few months ago. More than 300 companies went public via mergers with SPACs over the past two years, but certain signs of degradation show that these stock exchange tenants fell from grace.

In June, Michigan-based electric-vehicle maker Electric Last Mile Solutions began liquidation proceedings. In California, Enjoy Technology, created by former Apple retail store executive Ron Johnson, filed for Chapter 11 protection less than a year after it went public. More companies will surely follow.

Startups with little revenue are finding that their optimistic expectations are hard to achieve. Cash flow has been weak for many newly listed companies. At least 25 companies that merged with SPACs issued “warnings,” according to market researcher Audit Analytics. That means that they have “substantial doubt” about their viability in the next year.

More than 35 corporations associated with SPACs are trading below Nasdaq’s $1 listing threshold. The US Securities and Exchange Commission is investigating smart-glass maker View, which failed to file financials on time. Electric-vehicle startup Lordstown Motors could possibly go under, as may biotech expert Clarus Therapeutics and car marketplace Carlotz.

European corporations are also suffering. Cazoo, a British online used-car distributor, slashed hundreds of jobs in June and froze investment projects. Lilium, the German maker of electric air taxis, is trending down on Nasdaq and isn’t expected to begin production until 2024, at the earliest.

Many companies have missed their forecasts. Helbiz, a scooter rental wannabe in New York city announced in early 2021 that it had a “clear path to profitability” but ended the year with $72 million loss. Corporations with real revenue prospects, it seems, are getting harder to find. So much so that billionaire Bill Ackman, in a July 11 shareholder letter, announced he would return the funds of his $4 billion SPAC. No merger candidate met his investment criteria, he said.