After raising more than $83 billion in 2020, it looked like SPAC mania was poised to rage on through 2021, too. Most major industries, including media, were busy riding the M&A wave until the trend began to see a dramatic downturn at the start of the second quarter.
The biggest media SPAC, or special purpose acquisition company, to hit the market as of late was Argus Capital Corp, led by former CBS Corp. exec Joe Ianniello. The IPO raised over $300 million in its public debut in late September, but the timing may not have been ideal.
SPACs gained immense popularity last year as a means for companies to go public without the hassle of a lengthy and expensive traditional IPO process. The hype surrounding SPACs, also referred to as “blank-check” companies, rose steadily before peaking in March.
In March alone, 109 SPACs hit the public market and raised more than $36 billion. There were a total of 248 U.S.-listed SPAC IPOs in 2020 compared with 460 so far this year, according to data from financial analytics platform Dealogic.
Argus is just the latest in a long list of media SPACs that emerged over the past couple of years. But with that sudden rise in popularity came heightened scrutiny. SPACs were delivered a blow in the spring after the Securities and Exchange Commission (SEC) began cracking down on the once-hot trend.
After raking in record money last year, the SEC began taking a closer look at emerging SPACs and have announced various actions as it looks to better regulate the space. In April, the SEC issued guidance on possible changes to the accounting for SPACs, and in August the commission charged Stable Road Acquisition Company for misleading disclosures ahead of its planned merger.
In addition to the new regulatory hurdle SPACs now face, classic challenges also remain. For instance, finding a suitable merger candidate is not always guaranteed, and even if a merger is completed, it’s not always a harmonious match. It’s important to note there’s a two-year deadline for SPACs to find a company to merge with, or they risk having to return money to their investors.
And the interest in SPAC investing continued to wane. Looking at the ETF tracking SPACs, SPAK, it jumped as much as 33% from inception in late September to mid-February before retreating from those highs. Since that peak, the ETF fell about 37%. An ETF is an exchange-traded fund that tracks a sector, index or commodity, and investors can buy and sell them like regular stocks.
The SPAK ETF is a diversified portfolio of SPACs, with 60% of the holdings companies that went public through a SPAC and the remaining 40% companies that have not yet merged with another company. Some of the biggest holdings include companies that successfully went public through a SPAC: DraftKings, Skillz and Virgin Galactic.
Despite the growing challenges associated with SPACs, some media companies are still aggressively looking to consolidate resources and merge, with further hopes of expansion through acquisitions.
The road is getting more difficult, and given the timing, Argus will be a major litmus test for media SPACs. The question will be whether investors have the stomach to continue pouring large sums of money into speculative investments such as SPACs, even if there are respected names attached to them.