Chamath Palihapitiya, backer of the Social Capital Hedosophia Holdings Corp. special-purpose acquisition corporations, or SPACs, is winding down two vehicles after failing to find target companies within the required time frame.
In regulatory filings, Palihapitiya, known as the “SPAC king” for the number of vehicles he has launched, said he is winding down Social Capital Hedosophia Holdings Corp. IV
IPOD,
which raised $461 million, and Social Capital Hedosophia Holdings Corp. VI
IPOF,
which raised $1.15 billion.
SPACs, also known as blank-check companies, raise money in an initial public offering and then have two years to find a company or companies to acquire with those funds.
In the past two years, Palihapitiya said he and his team evaluated more than 100 target companies, and “while we came close to doing a deal several times, we ultimately walked away each time for a couple of reasons.”
These included valuation and volatility.
The team said it met with resistance from management teams who didn’t want to face public markets in a period of high volatility.
Last month, the two blank-check companies said they needed to push back an Oct. 14 deadline to allow more time to find target companies.
The news comes after a regulatory crackdown on SPACs, which became a popular way to take companies public during earlier stages of the pandemic. That led to record levels of filings and some questionable acquisitions, most of which have lost value since the deals were closed.
Also read: SPAC crackdown: SEC proposes new rules stripping advantages over traditional IPOs.
Data gathered by SPAC Research and compiled by Dow Jones Market Data in July found that 381 blank-check companies had made acquisitions since 2016, with 300 of those deals occurring since early 2020. On a median basis, the stocks of those 381 companies, post-SPAC, are down 66.6% since the deals were announced.
There were nearly twice as many SPACs still seeking a target or facing possible liquidation. There are 590 publicly traded SPACs facing a deadline to find an acquisition target within the next two years, according to SPAC Research data.
Also read: At least 3 SPACs pull IPOs in latest sign popular pandemic route to public markets is losing steam.
Stanford University professor Michael Klausner told MarketWatch that SPACs are a terrible structure for investors.
Klausner has been studying SPACs for the past few years and has co-authored several papers and articles on the topic, including “A Sober Look at SPACs.”
“And what’s happening now is 100% predictable, was predicted — we predicted it. The mystery is why it took so long for the market to figure it out.”
For more: The SPACsplosion is about to become a liquidation frenzy — and that may be for the best
Palihapitiya is just the latest sponsor to pull back. Earlier this year, billionaires Sam Zell and Bill Ackman pulled their vehicles. Ackman’s Pershing Square Tontine Holdings Ltd. had raised $4 billion in the biggest SPAC yet but hit its two-year deadline without a deal.
Palihapitiya said he was proud of the companies he did bring to public markets, including Virgin Galactic Holdings Inc.
SPCE,
Opendoor Technologies Inc.
OPEN,
Clover Health Investments Corp.
CLOV,
SoFi Technologies Inc.
SOFI,
ProKidney Corp.
PROK,
and Akili Inc.
AKLI,
But all six are now showing significant year-to-date losses. Space-travel company Virgin Galactic is down 61%; the online real-estate platform Opendoor is down 75%; healthcare provider Clover Health is down 41%; fintech SoFi is down 61%; and Akili, which makes digital technology to treat pediatric ADHD, is down 68%. Prokidney, which is developing therapies to treat chronic kidney diseases, is down just 0.1%, but it only went public last month.
The investor said he would continue to focus on early-stage companies. “Our view on SPACs remains consistent since our first deal — SPACs are just one of many tools in our toolkit to support companies as they enter subsequent stages of growth.
