SPACs, or special purpose acquisition companies, have lost their popularity in the finance world. These companies are created and listed on the stock exchange with the intention of acquiring a private business. Often referred to as “blank-cheque” companies, SPACs have gained momentum in 2020 as investors searched for new investment opportunities.
Some notable gaming SPACs include DraftKings, which merged with SPAC Diamond Eagle Acquisition Corp and SBTech, Super Group’s business combination deal with Sports Entertainment Acquisition Corp, and Genius Sports’ listing with dMY Technology Group Inc II. However, the success of SPACs seems to be diminishing as an increasing number of them fail to meet their goals or back questionable businesses.
One of the major challenges that SPACs face is the lack of suitable targets. By March 2021, there were still around 450 SPACs actively seeking companies to acquire, down from over 600 earlier in the year. This scarcity of potential acquisitions forces SPACs to explore industries outside their founders’ expertise.
Moreover, the different rules governing SPACs compared to traditional listing methods, like IPOs, may contribute to their rise and fall. SPACs have been able to make more optimistic forward-looking statements due to lenient regulations, leading to disappointments when these projections are not met. For example, a study published in the Harvard Law Forum on Corporate Governance revealed that 65% of SPACs fail to meet their revenue projections.
Recognizing these challenges, the Financial Conduct Authority (FCA) implemented stricter rules for SPACs in July 2021 to protect investors. One crucial aspect of these rules is the “redemption” option, which allows investors to withdraw their funds before the deal is completed. This redemption option has become a significant factor contributing to the decline of SPACs, as more investors choose to exercise it.
The decline of SPACs in the gaming industry reflects both macro-economic forces and trends specific to the sector. Gaming valuations have dropped, and the burst of the DraftKings bubble has created uncertainty. As a result, investors are prioritizing the preservation of their capital rather than risking its further devaluation by remaining invested in SPACs.
The decline of SPACs as a listing method may have implications for the industry, as the alternative, initial public offerings (IPOs), can be more expensive and time-consuming. This could potentially slow down the process of businesses entering the market as investments may decrease.
In conclusion, while SPACs experienced a surge in popularity during 2020, their decline and the challenges they face serve as a cautionary tale for gaming investors. Market conditions may improve in the future, but it is essential to remain wary of the risks associated with SPACs.
