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Short lists: SPACs are scrambling to remain on stock exchanges

When investors flee, SPACs are at risk of being booted off the US stock exchanges to which they have flocked in droves. In Q1 2022, SPAC redemption rates averaged more than 82%, prompting Nasdaq's director of new listings, Andrew Hall, to flag up delisting risks.

The issue for blank-check companies is that the Nasdaq requires companies to have at least 300 round lot holders (an investor who owns 100 or more shares, or around US$1,000 worth in the case of SPACs, which typically mark their shares at US$10).

The NYSE has an even higher threshold of 400 and a minimum market cap requirement of US$100 million, versus the Nasdaq's US$50 million—no surprise, then, that most SPACs opt for the latter. The Nasdaq has hosted 606 SPACs since January 2020, according to Dealogic, while the NYSE has hosted 308.

Plugging holes 

That's all fine and dandy when cash shells are in fashion, but what happens when they fall out of vogue? With redemption rates as high as they are, SPAC sponsors are scrambling to find replacements just to stay on their chosen exchanges.

Private investments in public equity (or PIPE deals as they're better known) are often used by businesses going through the de-SPAC process to rebuild their shareholder base, making up for any shortfall when retail investors exercise their take-back rights.

Nasdaq then reviews the equity and shareholder requirements for de-SPAC-ed companies two weeks after their deals close and their securities begin trading on the exchange, assuming they meet the listing requirements.

At the 34th Annual Roth Capital Conference earlier this year, Hall cautioned that the SPAC will fail to meet the basic requirements “even if you are one short.”

You've been warned.