Special Purpose Acquisition Companies (SPACs), once the darlings of capital markets, are cautiously re-entering the spotlight after a dramatic downturn. From 2020 to 2021, approximately 860 SPACs raised capital, as per corporate advisor Kroll. However, less than 100 of these companies remain active today, with many folding and returning cash to investors without completing acquisitions.

Those that did manage to close deals often overpaid or took companies public at exaggerated valuations. A notable example is Lucid Motors, which merged with Churchill Capital Corp. in a $4.4 billion transaction. Since its 2021 Nasdaq debut, Lucid's shares have plummeted by 85%.

Some SPACs Find Success
Despite the setbacks, Churchill Capital, led by former Citigroup banker Michael Klein, raised $288 million for its ninth SPAC in May 2024, signaling optimism. Similarly, some SPAC mergers have thrived, such as fantasy sports network DraftKings, which has doubled its value since its merger with Diamond Eagle Acquisitions in 2020.

Joe Voboril, CFO of Colombier Acquisition Corp., believes the future holds more success stories like DraftKings. His firm recently raised $170 million for its second SPAC, and Voboril suggests that the amateurs who crowded the SPAC market during its peak have largely exited. He explains that many of these early participants lacked the experience necessary to navigate the complexities of the SPAC process. Now, seasoned professionals are stepping in with more measured ambitions.

SPACs vs. Traditional IPOs
According to Don Duffy, president of ICR, a New York-based corporate advisor, SPACs can still provide some advantages over traditional initial public offerings (IPOs). One key benefit is the certainty of knowing the exact amount of capital that will be raised through the SPAC process, which can be more variable in an IPO.

Another advantage is that SPAC targets can time their entry into public markets more strategically, avoiding the rigid schedules often imposed by investment banks during IPOs. Companies creating new industries, such as DraftKings, may also struggle to generate interest from traditional underwriters, making SPACs an attractive alternative.

Global SPAC Trends
Although SPAC activity has slowed in North America, the model has gained traction in emerging markets, particularly South Korea. Last year, South Korea listed 36 new SPACs, compared to 58 in North America, and just four in the UK.

Research from Woojin Kim of Seoul National University reveals that Korean SPACs tend to perform better due to stronger alignment between sponsors and targets, resulting in lower redemption rates and higher post-merger returns.

A More Disciplined Future for SPACs
As the dust settles, experts believe SPACs can maintain a productive presence in the capital markets, with expectations that 50 to 80 new funds could be launched annually in North America. These funds will likely target smaller companies with market valuations below $1 billion. However, investors remain cautious, with Don Duffy pointing out that institutional interest is still lukewarm. "The jury is still out," he concludes, acknowledging that SPAC sponsors must prove their approach has evolved.