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March 7, 2022
Welcome to the SPAC Research weekly newsletter.
Shrinking Deal Sizes
We've been tracking the challenging environment in SPACs for months now. Trading conditions are brutal and committed financing is very tough to come by. But lately we've observed a corollary phenomenon.

In Q1 2021, when the SPAC market was piping hot, roughly three-quarters of the nearly 100 announced deals carried a sticker price of over $1 billion. But in February 2022, just one of the nine announced SPAC deals, the DPCM Capital, Inc. (NASDAQ: XPOA) acquisition of quantum computing company D-Wave, had an enterprise value with ten digits.
You can see below that the enterprise value of newly announced SPAC deals has generally been shrinking for at least nine months. The y-axis is shown on a log-scale for visibility, which means the decline is pretty dramatic.
We all know PIPE financing is extremely challenging these days. Part of the explanation for shrinking deal sizes is that megadeals are much more challenging with less committed capital.

But SPAC-related factors are only part of the story. Speculative growth tech valuations have been shrinking for the past few months so it stands to reason that we would see smaller sticker prices across the board. Still, everything gets harder when markets are on a downward trajectory.

Hypothetically, an operating business whose public peers were trading at 15 times revenue back in September might be looking at an environment in which public comps are now trading at 8 times revenue. How long does it take for that business to get comfortable with the new normal in valuation? It's possible that only those with more urgent capital needs will be willing to move on to a world of lower multiples.

We reworked the scatter plot above into a bar chart to illustrate how precipitously the enterprise values of announced transactions have dropped in recent months.
Sponsors generally seek a partner whose enterprise value is at least four or five times the size of their trust account. Most months last year saw average multiples of five to 10 times trust. But February's average deal was just three times the size of its trust account. We've added the EV/Trust multiple in red below to demonstrate how this dynamic has shifted over time.
The promote size of smaller SPACs is easier to swallow for would-be deSPACs. But as deal EVs shrink it could squeeze sponsors and service providers into more concessions and lower fees. In January, we discussed how the challenging environment was leading to more promote forfeitures and earnouts. Below, you can see an update to the stacked bar chart showing sponsor concessions for SPACs greater than $200mm in size. As before, promote retention is measured by counting the proportion of the sponsor's original promote that's not subject to any forfeiture or earnout.
It doesn't look like the fraction of deals where the sponsor retains their entire promote unconditionally is shrinking. But it's hard to say if the sample is meaningful or if it suffers from selection bias (if, for example, troubled deals are more likely to make it all the way to deal announcement under current conditions). We'll have to wait and see the extent to which our prediction that sponsors will continue to get squeezed at the negotiating table comes true.
News From the Past Week

Deal News

  • Provident Acquisition Corp. (PAQC) announced a deal to acquire Perfect Corp., a provider of AR and AI SaaS solutions to the beauty and fashion industries. The deal reflects an enterprise value of $1bn and includes a $50mm PIPE anchored by Chanel, CyberLink and Shiseido. The transaction is expected to close in Q3 2022.

  • FoxWayne Enterprises Acquisition Corp. (FOXW) and Aerami Therapeutics agreed to terminate their business combination agreement, citing unfavorable market conditions.

  • Pacifico Acquisition Corp. (PAFO) proposed a LOI to acquire Caravelle, a global carbon-neutral ocean-going technology company.

  • Supernova Partners Acquisition Company II, Ltd. (SNII) closed its acquisition of Rigetti on Tuesday 3/1/2022 with approximately 33% of public shares remaining. Ordinary shares and warrants are now trading on the NASDAQ as “RGTI” and “RGTIW.”

  • Burgundy Technology Acquisition Corporation (BTAQ) liquidated and redeemed its outstanding shares on Tuesday 3/1/2022 for a price of $10.05 per share with its warrants expiring worthless.

  • Bloomberg reported that Graf Acquisition Corp. IV (GFOR) is in talks with roadside assistance firm Urgently.

New S-1's
Name Ticker Size ($mm) Underwriter Trust Funding Coverage
Makara Strategic Acquisition Corp. MKAR 250 EF Hutton 102.5% 1
Denali Capital Acquisition Corp. DECA 75 Tiger Brokers 100.0% 1/2


IPOs
Name Ticker Raised ($mm) Sector Cash in Trust Coverage
Kensington Capital Acquisition IV KCAC 230 Automotive 100.0% 2
Sound Point Acquisition I, Ltd SPCM 225 General 103.0% 1/2
Valuence Merger Corp. I VMCA 200 Technology 103.0% 1/2
SHUAA Partners Acquisition I SHUA 100 Technology 102.5% 1/2

Registrations Withdrawn
Name Ticker Size ($mm) Underwriter Trust Funding Coverage
Capitol Investment VII CIC 400 Citi 100.0% 1/5
Jeneration Acquisition JACA 300 MS 100.0% 1/3
Serendipity Capital Acquisition SCAC 250 GS 100.0% 1/3
Altitude Acquisition II ALTE 200 Cantor 100.0% 1/3
Altitude Acquisition III ALTT 200 Cantor 100.0% 1/3
Capitol Investment VI CICX 200 Citi 100.0% 1/4
Tekkorp Digital Acquisition II TEKC 150 Jefferies 100.0% 1/3
VIDA FLaSH Acquisitions FLSH 150 GS 100.0% 1/4

Charter Extensions

  • ESSC extended its charter through 8/24/2022 with less than 1% of public shareholders exercising redemption rights.

Upcoming Meetings and Deadlines

  • 3/8/2022 SPAQ Allegro approval meeting (merger outside date 2/23/2022)
  • 3/8/2022 CFFE Extension approval meeting (liquidation date 3/16/2022)
  • 3/9/2022 MTAC Memic approval meeting (merger outside date 3/11/2022)
  • 3/10/2022 SPK Liquidation deadline
  • 3/15/2022 GLAQ Liquidation deadline
  • 3/15/2022 BTNB PropertyGuru approval meeting
  • 3/15/2022 MOTV Forge Global approval meeting
  • 3/16/2022 FMAC Starry approval meeting
  • 3/17/2022 ATA Liquidation deadline
  • 3/18/2022 VHAQ Extension approval meeting (liquidation date 3/28/2022)
  • 3/18/2022 AMAO Extension approval meeting (liquidation date 3/22/2022)

Links

  • Bloomberg reported that Geely-backed Ecarx is weighing a $4bn SPAC merger.
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