The Short-Lived Ascent of SPAC Mania

Few can resist a new fad

As investors look into new opportunities in 2023, we can count on the continuing susceptibility of investors to buy faddish, shiny new objects that have a long history of falling from their lofty heights.

It may take a few years, but the old tale of bursting bubbles now entraps retail and institutional, professional, and amateur investors alike.  Few people can resist the attraction of being left behind if they sense the next new thing is approaching.

The most recent, and certainly not the last, crash-and-burn investment is not a stock, bond, or sector, but an esoteric and complicated structure called SPACs that emerged onto the investment scene around 2020.

SPACs, or Special Purpose Acquisition Companies, are the financial companies that launch IPOs.  They are financial firms with card Blanche to search for potential firms to take companies public.  If you are interested in IPOs because they allow you to get in on the ground floor of an investment, SPACs are even more attractive since they are on a level below the ground floor.

In short, SPACs are the pre-IPO companies that take companies public.  Suppose you invest in a SPAC, and the company is diligent enough to find a company to take public successfully.  In that case, investors are told to believe their stock has excellent upside potential.

The Hype Behind SPACs

That is the hype, but not the facts.

As Bloomberg reported, 2023 ended “with a string of big bankruptcies and even bigger losses for shareholders.

“At least 21 firms that went public by merging with special purpose acquisition companies, or SPACs, went bankrupt this year, according to data compiled by Bloomberg.  Measured from their peak market capitalizations, the insolvencies bookend the loss of more than $46 billion of total equity value.”

Among the biggest losers in 2023, Bloomberg found,  were:

  • WeWork Inc., which boasted a $9.4 billion market value after going public in 2021. It succumbed to Chapter 11 last month with plans to jettison expensive office leases.
  • Electric vehicle makers Proterra Inc. and Lordstown Motors Corp. also carried sizable market values, topping out at roughly $3.7 billion and $5 billion, respectively, before filing for bankruptcy earlier this year.

But like any hot, new, faddish investment, SPACs began with a roar.

The year 2020 was a massive year for SPACs.  In 2020, SPACs raised as much cash as they did over the preceding decade, with two-thirds of this cash raised in just the past three months, according to the Harvard Law School Forum on Corporate Governance.  SPACs in 2020 represented about half of the total IPO market and raised

This pool of SPAC money has become so popular that it attracted 600% more capital in 2020 than in 2019, according to data from Dealogic.

SPAC activity in 2020 produced significant, but often short-term, increases in their post-IPO listed shares.  This process is part of their corporate structure.

By their definition, SPACs cover almost every market sector and geography, so it is difficult to say this whole sector is on the verge of being over-hyped.  However, some SPACs that invest in specific sectors were predicted to enter bubble territory in 2021, according to some investment analysts.  For instance, valuations became unhinged from actual revenues in the electric auto vehicle sector.

2024 Will  Inevitably See More New Losing Fads

Looking ahead to 2024, investors should beware of more inevitable bubbles built into global electronic markets.  Markets are easily hyped and manipulated by flash trading, social media hype, meme stocks, political events, and crypto scams.

Are the days of SPACs over?  Nothing ever dies on Wall Street.  Tulip mania is a constant companion for all investors.

The old caveat is that investors should investigate the SPAC sector but should focus on each firm’s underlying investment sector focus.  If this sector choice has value on the upside, take a closer look.  Investors should also know how SPACs are structured since that determines how their share prices move in the pre- and post-IPO stages.

Investors should also consult the works and opinions of investment pros who know the classic elements of investing.  That means they should know that crypto is not an asset class.  If your retail advisor suggests crypto as a part of your portfolio, find another advisor.

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Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry. He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial. He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site,, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).


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