Header image

SPAC-tacular failures—a how-not-to guide

For all the hype surrounding blank check companies these days, some have been sold on empty promises or, at the very least, fallen far short of expectations.

ATI Holdings has been one of the worst offenders. In its first quarterly report as a public company, the business missed its turnover target by 6.7% and rolled back its revenue guidance by around 10%. But it's the company’s profit outlook that really smarts—ATI's EBITDA guidance was chopped in half.

This has been so disastrous that many law firms have announced securities fraud investigations into the company. The stock is currently languishing at around US$3.66 versus a SPAC IPO price of US$10. Not a good look.

Other misses include Multiplan Corp, which currently has a lawsuit on its hands that claims its de-SPAC merger was “value-destructive.” To its credit, the company has increased both its revenue and EBITDA guidance for 2021, but Factset’s earnings consensus is US$40 million below what the company originally committed to and US$46 million below the company’s revised guidance.

Stryve Foods, meanwhile, cut its revenue guidance by 36% within a month of its merger, and Factset's earnings consensus for 2021 has fallen to negative US$15 million compared with the company’s original outlook of negative US$2 million.

Regulators, mount up!

These car crashes will do nothing for the SPAC cause and are further fuel for the regulator's fire. Aside from pulling cash shells up on an accounting quirk earlier this year, the Securities and Exchange Commission (SEC) has so far done little to clamp down on what many see as a free-for-all. But rules are likely to come.

Speaking to Congress on September 14, 2021, SEC chairman Gary Gensler noted the risk to retail investors in cash shells when merger targets are found and institutional investors head for the hills: "... they usually have a two-year fuse and in that two-year fuse they try to go out and buy something. And a lot of the institutional investors, when that happens, sell. It's called a redemption right, and retail investors are often left holding the dilution, or the significant costs of the bankers and the promoters. So, we're looking at greater disclosures and if there's inherent conflicts along the way. And then try to put this out to notice and comment and rule-making."

Between SPACs and cryptos, Gensler has his work cut out for him. Whichever comes first is anyone's guess but rest assured that both will feel the heat from the SEC sooner or later.