SPACs Are Warning They May Go Bust

The SPAC boom sent a wave of companies to the mass market, promising years of rapid growth and returns for investors. Two years since the boom began, many of these companies have warned that they could go bankrupt.

According to research firm Audit Analytics, at least 25 companies merging with special-purpose acquisitions between 2020 and 2021 have issued so-called warnings of concern in recent months.

Among those who should issue a warning — until a company’s auditor determines there is “significant doubt” about its viability over the next 12 months — is a company that is planning to build a network. air taxis, many emerging tram companies and a scooter rental business.

Alerted companies accounted for more than 10% of the 232 listed through SPAC during that period, Audit Analytics said. That percentage is nearly double that of companies that list through more traditional initial public offerings, Audit Analytics said. This number does not include the hundreds of IPOs by companies that test blanks — SPACs before they merge with a private company — that often carry announcements of their own concerns.

Helbiz said in a SPAC presentation in early 2021 that it had a ‘clear path to profitability’ for the year, but ended up losing $72 million.


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Claudio Furlan / Zuma Press

The relatively large number of dire warnings is the latest example of the predicament of the SPAC sector, where scores of companies have raised hundreds of millions of dollars as part of a public listing. Many companies, especially startups with low turnover, quickly find that their forecasts are harder to come by than they say. Most of the nascent companies in the field have ignored their forecasts.

“We’ll see more of this,” said Michael Dambra, a professor at the University of Buffalo who studies SPACs, of the announcements of interest. “The cash flows are not going to come in,” he added.

SPACs — blank check companies with no operations that allow private companies to list on the public market by amalgamating with them — began to be used in mid-2020. One attraction is the SPACs have looser regulations than IPOs, allowing startups to attract investors with predictable sales and profits. More than 300 companies have listed publicly through SPAC since the beginning of 2020.

Since then, regulators have said they hope to change the rules around the projections for SPACs and make them more like an IPO. Shares of companies listed through SPACs in 2021 fell an average of 59.5% on Tuesday, according to an analysis by researchers Minmo Gahng and Jay Ritter.

Private companies are flooding into special purpose acquisitions, or SPACs, to bypass the traditional IPO process and go public. The WSJ explains why some critics say investing in these so-called short-testing companies isn’t worth the risk. Illustration: Zoë Soriano / WSJ

Manufacturer of View glass windows Inc.

VIEW 14.85%

manufactures windows that automatically change color tone based on sunlight. Silicon Valley-based company wins over deep-pocketed startup sponsor SoftBank Group Corp.

, committed about $1 billion. In an investor presentation, it compared itself to Amazon.com and Tesla.

View merges with SPAC in 2021, raising $815 million. The company told investors it did not expect additional financing before it turned a profit.

View’s cash was exhausted. As of year-end, it had $281 million, down from $518 million just nine months earlier.

It didn’t report any quarterly financial results as of May 2021, and Nasdaq has warned it may delist the stock, down more than 90% from its peak. View said it is in the process of adjusting its earnings.

The company said in a recent filing that it expected to include a warning of concern when it reported those results May 31, adding it did not have “appropriate financial resources.” ” to fund its activities for the next 12 months. A spokesman declined to comment.

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Air taxi maker Lilium NV warned of concern in its 2021 annual report after raising less money than it hoped for in its SPAC merger last summer.


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timm schamberger / Shutterstock

Companies that issue such warnings often exist. In addition, the auditors note that a large portion of companies that go bankrupt never issue such warnings.

Electric vehicle makers, popular among SPAC investors looking for the next Tesla, often forecast rapid growth before there are many such factories. As of early 2021, at least six disclosure investigations by the US Securities and Exchange Commission. Three car or battery manufacturers have issued warnings about the concern.

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The struggles extend to other types of vehicles. Scooter rental company Helbiz Of Inc.

HLBZ -7.44%

Recent financial statements include a going concern alert. The company said in a SPAC presentation in early 2021 that it had a “clear path to profitability” for the year, but ended up losing $72 million. The company did not respond to a request for comment.

Some companies raised less than they expected – and are now facing the prospect of a cooling market for funding amid trends in tech stocks. Lilium LILM 2.57%

NV raised $584 million in a deal with SPAC last summer. It plans to create electric-powered taxis that can fly up and land like a helicopter — a class of vehicle that has yet to be certified by the regulator.

Initially, the company said it expected to have enough cash to start planned production in 2024. But it raised about $250 million less than hoped in the merger. SPAC last summer. Its 2021 annual report includes a warning of impending concern. It also notes that the company “will depend on additional financing” for its operations.

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Edmund DeMarche

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