Companies That Merged With SPACs Have Underperformed the S&P 500 by a Stunning Margin Since 2018

At no time during the recent SPAC boom — except for a few days in early 2021 — did these new listings beat the S&P.

Illustration by II

Illustration by II

Companies that have gone public by merging with a special purpose acquisition company have underperformed the S&P 500 by eighty percentage points since 2018, according to a new deSPAC Index launched by PitchBook on Thursday. The index has posted a decline of 31.6 percent since 2018, compared with a gain of 50.4 percent for the S&P 500, according to PitchBook, which is owned by Morningstar.

This year the index is down 30.1 percent, compared with a 10.6 drop for the S&P 500, PitchBook said.

What’s more, at no time during the recent SPAC boom — except for a few days in early 2021 — did these companies outperform the S&P 500, according to a chart in the performance report.

The underperformance began to accelerate last year, picking up steam as the year ended — and shows no signs of easing.

“The recent rout in public markets, which began around the last few trading days of 2021 and has continued through the first quarter of 2022, has steepened the rate of loss for these recently public companies,” PitchBook said.

This year has already witnessed a “chill in SPAC combination activity,” according to PitchBook, which noted that only 30 deSPAC deals closed during the first quarter of 2022.


It also said that high redemption rates at the time of the merger have pushed these companies to rely on PIPE (private investment in public equity) deals, which became a “mainstay of 2021 deSPAC transactions” but have since become more scarce. Last year some 80 percent of deals relied on PIPE financing.

“The possibility that fresh PIPE capital from well-capitalized institutions will dry up is a worrying sign for the ongoing health of the SPAC market, as these institutions represent a class of investor with a much longer-term focus, which is key for a smooth transition to a public entity,” Pitchbook said.

The research firm said its analysis “isn’t a condemnation of the SPAC vehicle in its entirety because at the end of the day the company that merges with the SPAC must execute on its operating plan. That said, many deals were priced in the valuation climate of 2020 and 2021, which consisted of some of the most elevated multiples in history — especially for companies with growth prospects.”

During the boom, SPACs began to shift their focus to younger businesses and to such sectors as biotech and technology, as is evidenced by the composition of the PitchBook deSPAC Index. The benchmark is heavily weighted towards transportation, software, and biotech and pharmaceutical companies. Together, they make up 43 percent of the companies represented in the index.

PitchBook also noted that these firms’ “ability to include future projections in prospectus documentation was billed as a feature to persuade companies to consider a reverse merger with a SPAC; however, shifting sentiment in public markets may have caused this strategy to backfire on many deSPACed companies.”

The problem such projections posed to investors was addressed by the Securities and Exchange Commission last week when it proposed a new SPAC rule that would eliminate the safe harbor from litigation that critics have complained has led to overly optimistic, and often misleading, forward-looking statements in a merger.

Companies included in PitchBook’s deSPAC Index are Lucid Motors, which makes up 10 percent and is the largest single name, Ingersoll Rand (5 percent); Grab (3 percent); SoFi (2 percent); MP Materials (2 percent); DraftKings (2 percent); QuantumScape (2 percent); CCC Intelligent Solutions (2 percent); ChargePoint California (1 percent); and ironSource (1 percent.) Other stocks make up 70 percent of the index.

This year’s tumultuous market environment has further clouded the outlook for these companies, PitchBook said.

“In the same way that companies pull IPO plans rather than list during a negative pricing environment, we believe potential SPAC targets may opt to delay or forgo any negotiations until there is a clearer picture of the markets,” according to the report.