Companies Need Strategic Advice to Evaluate Different Financial Structures to Raise Capital Given the Scarcity of PIPE Funding

SEC’s Proposed Rule Changes Remain a Significant Overhang to the SPAC Market

ICR, a leading strategic communications and advisory firm, today released its Q2 2022 SPAC Market Update report.

SPAC IPO issuance has continued its measured pace in Q2 of 2022 as SPAC market participants take a more cautious stance in a turbulent market. In the second quarter of 2022, 16 SPACs raised $2.1 billion compared to the first quarter of 2022, when 54 SPACs raised $10.1 billion, a decrease in proceeds of approximately 79%.

“As the market has become more challenging with an overhang from the SEC rule proposals and many banks providing less support, it’s more important than ever to have an advisor that brings a full suite of services to the table. It’s critical for SPACs, sponsors and target companies to have an advisor with capital markets expertise, investor relations, deal communications, and PR throughout the de-SPAC process, and we are the largest integrated global platform to deliver that,” said Don Duffy, President, ICR.

The slowdown in the SPAC market mirrors weakness in the broader market for initial public offerings (IPO), which is off to its weakest start in years after 2021’s record deal flow. In the second quarter of 2022, 21 traditional IPOs raised $2.1 billion, a similar pace to Q1 2022, but a stark contrast to the 118 traditional IPOs and $40.7 billion raised in Q2 of last year. SPAC IPO activity has declined with 16 offerings that raised $2.1 billion, with the number of IPOs back at the quarterly average of 2019.

“The markets have seen a correction which has pressured both traditional IPOs as well as post-merger SPAC returns. While the backdrop remains challenging, there is still a robust pipeline of companies ready to come to market once conditions improve. That said, we expect SPACs will increasingly target companies with proven or recession-resistant businesses,” said Lee Stettner, Co-Head of Capital Markets, ICR Capital.

Redemption trends in the first half 2022 remained the focal point of SPACs, target companies and the institutional market. Redemption rates have increased from 11% in Q1 2021 to 85% in Q1 2022, and improved slightly to 79% in Q2 2022. It has become increasingly challenging for SPACs and target companies to raise PIPE funding so teams are evaluating different financial structures to raise capital.

“SPAC capital formation has been adversely impacted by high redemption rates and the scarcity of PIPE capital,” said Niren Nazareth, Managing Director, ICR Capital. “We are actively advising SPACs and management teams on financial strategies that maximize capital at merger close, increase access to financing as a public company, and optimize capital structure over time.”

The SEC’s proposed rule changes has created a significant overhang in the SPAC market until final rules are understood and implemented. Additionally, the public comment period was extended to mid-June lengthening the timeframe until the final rules are released and become effective toward the end of this year.

“There have been a significant number of comment letters sent to the SEC prior to the deadline. Comment letters regarding underwriter liability demonstrate the complexity of the issue and questions the authority of the SEC’s reach to 'reallocate' such liability to advisors in the transaction. Recently announced SPAC merger transactions demonstrate how the market is adjusting real-time with enhanced disclosure and a more conservative approach to forward looking projections,” said Duffy.

ICR is the largest advisor and communications consultant to SPACs, having worked on more than 120 transactions since the start of 2021. To obtain a copy of ICR’s Q2 2022 SPAC Market Update report, please click here.

About ICR

Established in 1998, ICR partners with its clients to execute strategic communications and advisory programs that achieve business goals, build awareness and credibility, and enhance long-term enterprise value. The firm’s highly-differentiated service model, which pairs capital markets veterans with senior communications professionals, brings deep sector knowledge and relationships to approximately 1,000 clients across more than 20 industry groups. ICR’s healthcare practice operates under the Westwicke brand (www.westwicke.com). Today, ICR is one of the largest and most experienced independent communications and advisory firms in North America, maintaining offices in New York, Norwalk, Boston, Baltimore and Beijing. Learn more at www.icrinc.com. Follow us on Twitter at @ICRPR.

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