Global Recession
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How are SPACs legal?
SPACs Are Warning They May Go Bust
The SPAC boom brought a wave of companies to the public markets promising years of rapid growth and profits to investors. Two years since the boom began, many of these companies are already warning they may go bust.
At least 25 companies that merged with special-purpose acquisition companies between 2020 and 2021 have issued so-called going-concern warnings in recent months, according to research firm Audit Analytics.
Among those to issue the warnings—which come when a company’s auditor determines there is “substantial doubt” about its ability to stay afloat for the next 12 months—are a company planning to build an air-taxi network, numerous upstart electric-vehicle companies and a scooter-rental business.
The companies with warnings amount to more than 10% of the 232 companies that listed through SPACs in that period, Audit Analytics said. That percentage is roughly double that for companies that listed through more-traditional initial public offerings, Audit Analytics said. The count excludes hundreds of IPOs by blank-check companies—SPACs before they merge with a private company—which often carry going-concern notices of their own.
The relatively large number of dire warnings is the latest example of the rough state of the SPAC sector, where scores of companies raised hundreds of millions of dollars as part of public listings. Many companies, particularly startups with little revenue, quickly found that their projections were harder to attain than they said. Large portions of young companies in the sector have missed their forecasts.
“We’re going to see more of this,” Michael Dambra, a professor at University of Buffalo who studies SPACs, said of the going-concern notices. “The cash flows aren’t coming in,” he added.
SPACs—blank check companies with no operations that let private companies list on public markets by merging with them—exploded in use starting in mid-2020. One attraction was that SPACs have looser regulations than IPOs, allowing startups to entice investors with projections of revenue and profits. More than 300 companies have listed publicly via SPACs since early 2020.
Regulators have since said they hope to change rules around projections for SPACs and make them more like IPOs. Shares of companies that listed through SPACs in 2021 were down an average of 59.5% as of Tuesday, according to an analysis by University of Florida researchers Minmo Gahng and Jay Ritter.
Private companies are flooding to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and gain a public listing. WSJ explains why some critics say investing in these so-called blank-check companies isn’t worth the risk. Illustration: Zoë Soriano/WSJ
Glass window maker View Inc. VIEW 9.48% manufactures windows that automatically change in tint based on sunlight. The Silicon Valley-based company won over deep-pocketed startup funder SoftBank Group Corp. , which committed about $1 billion. In an investor presentation, it compared itself with Amazon.com and Tesla.View merged with a SPAC in 2021, raising $815 million. The company told investors it didn’t expect to need additional financing before it would become profitable.
View’s cash has dwindled. As of year-end, it had $281 million, down from $518 million just nine months earlier.
It hasn’t reported any quarterly financial results since May 2021, and the Nasdaq has warned it may delist the stock, which is down more than 90% from its peak. View has said it is in the process of restating its earnings.
The company said in a recent filing that it expected to include a going-concern warning when it reports those results May 31, adding it doesn’t have “adequate financial resources” to fund its operations in the next 12 months. A spokesman declined to comment.
Companies that issue such warnings often survive. Additionally, auditors note that a large portion of companies that end up in bankruptcy never issued such warnings.
Electric-vehicle makers, which were popular among SPAC investors seeking the next Tesla, have often forecast rapid growth before having so much as a factory. Since early 2021, at least six have disclosed investigations by the U.S. Securities and Exchange Commission. Three car or battery makers have issued going-concern warnings.
SHARE YOUR THOUGHTS
How has your approach to SPACs changed in the past year? Join the conversation below.The struggles extend to other types of vehicles. Scooter-rental company Helbiz Inc.’s HLBZ -3.57% recent financial statements included a going-concern warning. The company said in a SPAC presentation in early 2021 that it had a “clear path to profitability” for the year, but ended up with a $72 million loss. The company didn’t respond to a request for comment.
Some companies raised less than they expected—and now face the prospect of a cooling market for funding amid the tech stock rout. Lilium LILM -5.02% NV raised $584 million in a SPAC deal last summer. It plans to make electric air taxis that can rise and land like a helicopter—a type of vehicle that has yet to be certified by regulators.
The company initially said it expected to have enough cash to make it to its planned start of production in 2024. But it raised about $250 million less than it hoped in its SPAC merger last summer. Its 2021 annual report included a going-concern warning. It also noted the company “will depend on additional financing” for its operations.
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@Tim said in Global Recession:
A thread for our current economic predicament.
Descriptors, indicators, causes etc.
@tim should you merge with the inflation thread?
Not sure how others are seeing it, but we are expecting a significant slowdown later this year. Could get ugly - rising interest rates, high inflation, lack of people... I am not excited.
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@Tim said in Global Recession:
@nzzp Not sure if commodities prices will keep NZ and Oz out of recession this year? I guess not.
I hope it does, but not expecting it here. Aus looks way less affected; they are pushing on with massive infrastructure spending.
Here, not so much. Prices going bananas, wages not keeping up, discretionary being eaten by high interest rates - it's looking ugly at the end of the year frankly.
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@nzzp glad I locked in my mortgage rate last year for 5 years!
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@taniwharugby the number of folks coming off fixed rates in the next 6-12 months is pretty scary. We are doing some reno and going through the lending process. We are committed to it but we have been thinking about rates increasing, let alone material and general building costs!
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@Paekakboyz yeah the numbers are crazy.
Construction (rebuild costs) in NZ are off the charts, huge number of NZers are underinsured on thier homes, even some of the online calculators that are out there to give an 'indication' are often way out.
We were looking at upgrading the car early last year, which we would have needed a loan for, decided against it.
Hell, even the 2nd hand market for cars is crazy, with service vehicles (utes, vans, small trucks) values remaining static or even appreciating due to lack of 2nd hand parts and vehicles and the slow down in new vehicles.
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it's almost as if shutting the entire world down, and printing a fuckload of money to pay people to stay home might have had a few consaquences
who knew?
but you know, lives over the economy and all that
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@mariner4life the follow up war in (part of) Europe and the ongoing supply chain/Covid shit is amplifying that earlier influx of spending. I wonder where the tipping point may have been... like if we could have handled 1-2 of these things at once, but successive events have turned it into a burning building and we only have water guns.
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maybe we shouldn't have outsourced all of our manufacturing to the country that is happy to just wall their people in to their buildings
even the shit that is made elsewhere is made up of components manufactured there.
don't overlook a huge amount of industries taking full opportunity of global chaos to just jack their prices (looking at you shipping)
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@mariner4life said in Global Recession:
maybe we shouldn't have outsourced all of our manufacturing to the country that is happy to just wall their people in to their buildings
even the shit that is made elsewhere is made up of components manufactured there.
don't overlook a huge amount of industries taking full opportunity of global chaos to just jack their prices (looking at you shipping)
Trade is good though, right? Like this will settle down, and trade benefits everyone. Trying to force everyone to do everythign winds up in TV being disassembled in Japan, shipped here, and reassembled by hand. It's just nuts.
I get it feels frustrating, but I think the the alternative is way way worse
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@nzzp said in Global Recession:
@Tim said in Global Recession:
@nzzp Not sure if commodities prices will keep NZ and Oz out of recession this year? I guess not.
I hope it does, but not expecting it here. Aus looks way less affected; they are pushing on with massive infrastructure spending.
In some areas, yes. But the Infrastructure NSW is now having another look at some of the bigger things in Sydney:
Major NSW infrastructure projects could be postponed as report finds they're too expensive
Large NSW infrastructure projects like the Beaches Link and the Parramatta Light Rail could be put on hold after a report finds they will be "challenging" to deliver.
There might be a kick along from the ALP deciding the country is already up to the tits in debt, so might as well lump a few more billion on there in energy network transformation, but that will depend on private investment.
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Lumber Prices Slump With Rising Interest Rates
Prices have fallen more than 50% since March, when the Fed began raising borrowing costs to slow inflation.
Lumber prices sharply down. Link above bypasses paywall.
Inverted V shape inflation curve, with GDP following an L shape?
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This lady writes about today's problems in a clear and instructive way.
May 2022 Newsletter: Inflation or Recession
May 8, 2022 Latest Articles: Investing During Stagflation Dividend King Investing Ideas This newsletter issue examines the Federal Reserve’s dilemma as it tries to fight inflation, while trying not to contribute to the forming of a recession. Causes of Recent Inflation Consumer price inflation came...
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Bumbling leaders and their message-minions want the rest of us to believe in unicorns. Surprisingly, some people seem to be a little skeptical. This mornings’ headlines and takeaways:
UK expected to enter a recession this winter until mid-2024
- Inflation set to hit 40-year high of 13.3 per cent
- Inflation now expected to exceed 13% at its peak this year
- main cause of all this is energy bills which by Oct will be triple last year
- interest rates now 1.75%
The Fed disagrees, but Main Street says 'the recession is already here.'
Confidence hits all-time low in CNBC/SurveyMonkey Small Business Survey, as weak sales outlook and inflation worry a Main Street that says recession is here.
CNBC poll today: U.S. small business confidence hits all-time low, 77% say inflation will continue to rise, 57% say the recession has already begun.
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@Kid-Chocolate said in Global Recession:
Bumbling leaders and their message-minions want the rest of us to believe in unicorns. Surprisingly, some people seem to be a little skeptical. This mornings’ headlines and takeaways:
UK expected to enter a recession this winter until mid-2024
- Inflation set to hit 40-year high of 13.3 per cent
- Inflation now expected to exceed 13% at its peak this year
- main cause of all this is energy bills which by Oct will be triple last year
- interest rates now 1.75%
Confidence hits all-time low in CNBC/SurveyMonkey Small Business Survey, as weak sales outlook and inflation worry a Main Street that says recession is here.
CNBC poll today: U.S. small business confidence hits all-time low, 77% say inflation will continue to rise, 57% say the recession has already begun.
If only the UK had a long-term energy strategy that:
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Made effective use of the oil and gas at its disposal in the short term (5 to 15 years) - instead, UK is demolishing fossil fuel power stations meaning elec suppliers are having to pay higher wholesale costs to meet demand
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Invested in the most reliable (albeit capital expensive) fuel source - nuclear - in the medium to long term (10 - 50 years)
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Invested in R&D/incentivised private company R&D for alternative fuel technologies (not just renewables) in the long term to make UK energy secure so as not to be susceptible to supply side shocks like it is currently.
Current energy prices are not just as a result of Russia invading Ukraine. It is largely as a result of governments discouraging the development of new oil and gas fields for a number of years in order to meet (or be seen to meet) climate change targets. This has now exploded in their faces as supply can't just be ramped up overnight to meet demand which has grown, not dropped. Add to this decisions by countries (like UK and Germany) to decommission or fail to replace nuclear power stations and you have a recipe for over-reliance on renewable energy (not efficient currently to satisfy demand) and Russian gas and oil.
This has been exacerbated further by western sanctions that are seeking to remove Russia fossil fuels from the global energy markets. Geopolitics at play, as ever. US didn't want Europe reliant on Russian energy as it posed a risk to US influence. So European (and UK) consumers are feeling the pain of ever rising energy prices.
National leaders have backed themselves into a corner in their pursuit of climate change targets by not being honest with the electorate that doing so was always going to result in much higher energy costs.
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It’s always tempting to look for a reason or reasons why we get into such predicaments and then to apportion blame accordingly but in truth it is always a combination of things that provide the environment for things to happen. As @JC said on another thread, the powers that be are largely just passengers.
Certainly we can look back at some decisions and say that even without the benefit of hindsight they were fraught with risk; Europe placing much of its energy dependency on its ideological enemy is a case in point. But what a win it was getting all that cheap gas. Politics is a short term business, it’s only statesmanship that has a long term view.
The Times & The Sunday Times
