SPAC Sponsors Desperate for Deals Turn to Smaller Transactions as Time Runs Out

Deal-hungry blank-check companies are eyeing smaller targets as the SPAC mania that led to dozens of multi-billion dollar mergers fizzles. These companies are in a rush to meet deadlines, and smaller targets are more achievable at this time. This shift could mean big things for investors and the future of these companies.
Calidi Biotherapeutics Inc. and First Light Acquisition Group have announced a tie-up, with the biotech being assigned an enterprise value of $335 million. This comes after another SPAC deal valuing Calidi at $449 million fell apart five months ago. The new tie-up underscores the desperation of sponsors as they hunt for targets to merge with before deadlines loom.
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SPACs have announced at least nine deals in the first 10 days of the new year, with an average enterprise value of $185 million. This is a shift from the $1.06 billion average seen in January 2021, and a decline from the $2.22 billion average seen during the boom in January 2021, according to SPAC Research data.
There has been a trend toward smaller transactions in recent months, driven in part by SPACs having less cash. Those with deals announced in 2023 raised an average of $160 million, according to data compiled by Bloomberg.
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Another issue facing SPACs is the high rate of redemptions, where investors swap their shares for cash. The average redemption rate for January is 80%, lower than last month's record of 97%, but in line with the elevated activity in the past year. This market churn makes it difficult for newly public companies to raise money.
As the mania around tiny homes begins to fizzle, sponsors are turning their attention to other potential targets.
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As of Jan. 10, January 2023 data are available. This data provides information on the current state of the economy and can help predict future trends.
Investors are still expecting a number of SPAC deals to be announced in the coming months, following the more than 50 that have been unveiled since October. However, with market dynamics and a glut of more than 300 blank checks looking for targets ahead of deadlines in the next five months, the focus is likely to remain on smaller companies.
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Julian Klymochko, CEO of Accelerate Financial Technologies, believes that most SPAC deals will be in the small to micro-cap range (under $2 billion). He thinks that SPACs should focus on these smaller deals, as we have seen some high-quality deals announced and IPOs completed in this space in recent months. However, he notes that the SPAC IPOs themselves are smaller than they have been in the past.
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After a merger with a blank-check firm, the median company that went public in 2022 is down 67% in the past year, compared to a 16% drop in the S&P 500. This is not an easy situation for these companies to be in.
This year, at least three SPAC tie-ups have debuted on major exchanges and already suffered from choppy performance, as speculators flip the low-float stocks. Moolec Science SA swung between $22.20 and $4.35 in its first week on the Nasdaq, while MultiMetaVerse Holdings Ltd. cratered to an intraday low of $2.40 earlier this week.