The Cost of the Blank-Check Boom

○ The rush to take companies public with SPACs ends with bankruptcies and fire sales

- Pat Regnier

It took only 10 months for Quanergy Systems Inc., a maker of high-tech sensors and software, to go from its stock market debut to filing for bankruptcy. Fast Radius Inc., a 3D-printing company, made it nine months. Online retail startup Enjoy Technology Inc. lasted eight-and-a-half months before it filed.

What these companies all have in common is the way they made it onto the market. Instead of selling shares in a conventional initial public offering, each of them merged with a special-purpose acquisition company. A SPAC is a publicly traded corporate shell with no business other than to seek out a merger with another company, which then inherits the shell’s listing. Such deals were a pandemic-era Wall Street fad—but now a growing number of ventures that went public in this way have gone bankrupt, highlighting how speculative the SPAC game could be.

Internet service provider Starry Group Holdings Inc. on Feb. 20 became the latest to seek protection from creditors, bringing the count of failed SPAC offspring to at least eight since June 2022. The trend is likely just getting started. Almost 100 companies that listed this way don’t have enough money on hand to fund their current level of spending over the next year, data compiled by Bloomberg show. That’s on top of the 73 companies that currently trade below $1 a share, risking a potential delisting from major exchanges such as the New York Stock Exchange and Nasdaq.

Since the baseline share price of most SPACs before a merger is $10, a price below $1 also means that an investor who bought into the shell company in anticipation of a deal and held on for the full ride lost at least 90%.