Blank-cheque acquisition firms and the companies they acquire are having to hand over bigger stakes in the ventures to investors in some cases, often at big discounts.
Less than three months into 2022, 13 mergers involving Spacs have already fallen through in the US, according to data from industry tracker Spac Research.
Spacs are shell companies that raise money in an initial public offering and put it in a trust for the purpose of merging with a private company and taking it public.
Yet significant redemptions undermine the viability of such deals.
Only 24 Spac mergers, worth $28.3 billion, have been announced so far this year, against the 93 deals worth $233bn in the first quarter of 2021, according to Spac Research.
“The best way to maximise participation by Spac shareholders is to bring to market a highly profitable company with exciting growth prospects at an attractive valuation.
Spacs are also raising additional financings, known as private placements in public equity , to get deals over the line.
Some of the fundraising is also done via over-the-counter equity derivative agreements.
Some investment firms have also stepped in in recent months to backstop deals.
Some Spac managers have also chosen to invest more of their own money into deals to make up for redemptions.