21 SPAC Companies Went Belly Up in 2023
In an unstable macroeconomic environment with high interest rates, compared with three years ago, an increasing number of startups that have merged with special purpose acquisition companies, or SPACs, are running out of cash and unable to raise new funding.
According to Bloomberg, at least 21 businesses that went public through SPACs declared bankruptcy in 2023, losing approximately $46 billion in total equity. WeWork, Lordstown Motors, and Virgin Orbit were among the largest bankruptcies.
The failures of coworking space, electric vehicle, and space launch startups demonstrate that these companies were never “ready for primetime” on public markets, according to Gary Broadbent, a former SPAC AppHarvest Inc. executive.
WeWork was the most high-profile SPAC disaster in 2023. After going public in 2021, it was once valued at $9.4 billion. This collapse demonstrates the implied risks of high interest rates following a near-zero interest rate environment.
Usha Rodrigues, a law professor at the University of Georgia, told Bloomberg that the SPAC bubble during Covid was a “ticking time bomb” of corporate failures and “everyone should have seen this cliff coming.”
Bloomberg noted that about 140 SPACs will require urgent funding in 2024 to keep operations running. High interest rates will make refinancing difficult and increase the danger of further bankruptcies.
Furthermore, 44% of the companies who went public through a SPAC merger and submitted annual reports in 2023 contained “going-concern” warnings in their filings, indicating that their auditors believe they may not have enough capital to last the year. Bloomberg, which cited Hudson Labs, an analyzer of SEC filings, noted that this rate was double that of non-SPACs.
The CNBC Post-SPAC index, which tracks stocks following a merger with a SPAC, peaked in February 2021 and has since fallen by 82%.
Perhaps the Fed’s dovish pivot last month could be the most important lifeline for these businesses, as the market is pricing in six interest rate cuts through December 2024.