SPAC liquidations top $12 billion this year as sponsors grapple with tough market, new buyback tax

cnbc.com:

A new buyback tax has motivated more and more SPAC sponsors to close up shop before the year-end, adding another headwind to the blank-check space already roiled by a tough market environment.

A total of 27 SPAC deals, worth $12.8 billion, have been liquidated this year, according to data from SPAC Research. Under the new provision in the Inflation Reduction Act, SPAC sponsors could face a 1% exercise tax if they return cash to investors starting in 2023.

«Market condition is the driving factor, and apart from that, there is the 1% exercise tax,» said Melanie Chen, a partner at UHY LLP. «I think it added a little bit chemistry to accelerate the decision making process.»

SPACs, Wall Street's hottest tickets in 2020 and 2021, are experiencing a big reset amid increasing economic and regulatory headwinds. There are still more than 450 deals on the market for a merger target ahead of their 2023 deadlines, according to SPAC Research.

Appetite for SPACs, which are often early-stage growth names with little earnings, has diminished in the face of rising rates as well as elevated market volatility. Even deals from some of Wall Street's most high-profile investors couldn't come to fruition.

Chamath Palihapitiya, once dubbed SPAC king, has shut down two deals this month after failing to find suitable merger targets within deadline, returning $1.6 billion to investors. Bill Ackman, who raised $4 billion in the biggest-ever SPAC, folded the deal in July amid choppy markets.

SPACs stand for special purpose acquisition companies, which raise capital in an IPO and use the cash to merge with a private company and take it public, usually within two years.

Stocks that did go public via SPACs are among the hardest hit during the market