Spac craze fizzles with bankruptcies and investor losses of $46bn in 2023

Wall Street’s affair with blank-cheque companies, the finance fad that pushed companies on to the stock market during the Covid-19 pandemic, ended this year with a string of big bankruptcies and even bigger losses for shareholders.

At least 21 companies that went public by merging with special purpose acquisition companies, or Spacs, went bankrupt this year, according to data compiled by Bloomberg.

Measured from their peak market capitalisations, the insolvencies bookend the loss of more than $46 billion in total equity value.

The failures span money-losing electric vehicle start-ups and forward-thinking farming companies.

Blank-cheque companies were good at propelling their targets to the public market even when they lacked well-formed financials, said Gary Broadbent, an executive guiding former Spac AppHarvest through its liquidation.

Many weren’t “ready for primetime”, he said.

Some were more promising than others, but all drew dollars from excitable investors caught up in the Spac craze, including mom-and-pop traders. Plenty of shareholders are now suing Spac sponsors over their losses.

The largest Spac bankruptcies included that of flexible workplace provider WeWork, which had a $9.4 billion market value after going public in 2021. It succumbed to Chapter 11 [of the US bankruptcy code] last month with plans to jettison expensive office leases.

Electric vehicle makers Proterra and Lordstown Motors also enjoyed sizable market values, topping out at about $3.7 billion and $5 billion, respectively, before filing for bankruptcy earlier this year.

Many of these companies sought protection from creditors less than two years after going public. Software firm Near Intelligence filed Chapter 11 in December, less than nine months after its stock debuted on the Nasdaq.

Of course, many predicted the wave of bankruptcies. Critics called the Spac frenzy a bubble soon after it began.

Going public via Spac has historically been faster and faced less scrutiny than traditional initial public offerings. During the boom, companies targeted by blank-cheque firms also often made more optimistic projections about the trajectory of their businesses than would be seen in old-fashioned IPO processes.