Special purpose acquisition companies (SPACs) have raised more money than they did in 2020, just three months into 2021. Not only SPACs managed to raise a hefty amount of fund, they also lured more and more companies to joining into the bandwagon. Though, CNBC warns that the current climate might not be as pleasant to the red-hot industry.
Funds raised by SPACs in 2021 exceed $83.4 billion
The figure was what SPAC research recorded in 2020. Recent data show that SPACs, in total, have raised $87.9 billion so far in 2021.
Co-CIO of Envestnet PMC, Dana D’Auria told CNBC that “it seems that everybody is getting calls about these SPACs. The SPACs are knocking on their doors”. “When there’s a market like that, of course you just have to be concerned with the long-run return potential,” D’Auria continued.
SPACs for the red-hot industry might face some challenges
Currently, more than 400 deals are available for a hunt on the market. The problem with this occurrence is that finding good qualities will not be as easy as it was. Moreover, SPAC IPO stocks are “proven to be vulnerable to overall market volatility”, CNBC quotes. This is mainly due to the highly speculative trading activity. On the other hand, the companies’ growth, which often has yet generated any sales, could look much less appealing with higher interest rates sticking on them.
In accordance with this, Quincy Krosby of Prudential Financial commented, “for companies relying on future earnings, if rates continue to rise, they are going to be more vulnerable than bigger, more mature tech names”. “They don’t have strong balance sheets and sometimes don’t even have a business,” she further added. “The vulnerable parts of the market will be in jeopardy.”
Read also: Grab Holdings Looks for US IPO Opportunity Through SPAC
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