Less than 18 months ago, special purpose acquisition companies (SPACs) were the hottest thing that everyone touted, with former NBA star Shaquille O’Neal having one, as well as tennis professional Serena Williams and ex-MLB great Alex Rodriguez, among others.
But the shiny stars lighting up SPACs — also known as blank check or shell companies — have dimmed, with many of these companies cautioning those halcyon days are over, according to the Wall Street Journal on Friday (May 27).
See also: SPACs Get No Respect Amid 2022’s Tech Stock Shakeout
The research firm Audit Analytics indicated that a minimum of 25 firms merging with SPACs between 2020 and 2021 have released “so-called going-concern warnings” in the past few months. The warnings mean that a company’s auditor has deemed “substantial doubt” that a firm can survive for the following year.
That number is about double of those companies that are listed via traditional initial public offerings (IPOs), according to Audit Analytics.
Startups lacking revenue found that their projections were off and numbers difficult to achieve and many young firms missed their forecasts.
Read more: SPAC Efforts to Keep Investors Aboard May Not Be Enough to Calm Turbulence
“We’re going to see more of this,” Michael Dambra, a professor at the University of Buffalo who studies SPACs, told WSJ concerning the going-concern notices. “The cash flows aren’t coming in.”
More than 300 companies went public via SPACs in the past two years. Companies listing with SPACs were down an average of 59.5% as of Tuesday (May 24), according to analysis from Minmo Gahng and Jay Ritter, researchers at the University of Florida.
See also: SEC: Investors Can Sue Over Inaccurate SPAC Forecasts
Regulators are looking to change rules around projections for SPACs and make them more like IPOs. The U.S. Securities and Exchange Commission (SEC) said it plans to propose curbing legal protections that some SPACs have used in the past to make claims about the firms they’re proposing to take public.
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