The SPAC boom that defined market euphoria in 2020 and continued into 2021 has officially peaked, according to a Wednesday note from JPMorgan.
Since February, performance in SPAC stocks has materially underperformed the S&P 500, and new deal activity with SPACs has plummeted in April following a strong start to the year.
The Defiance Next Gen SPAC Derived ETF is down 25% from its February peak, and is down 9% year-to-date.
The decline in SPAC activity has been driven by a decline in retail traders pouring money into the new deals, as well as increased regulatory scrutiny from the SEC, according to JPMorgan.
The bank highlighted that SPAC reverse mergers “come and go in waves” as they tend to exhibit boom and bust cycles.
“The boom [is]typically driven by momentum and imitation by sponsors, investors, and target companies looking to take advantage of strong equity market demand conditions, and the bust [is]typically triggered by the emergence of poor quality players, strong levels of dilution for shareholders, waning hype by retail investors and regulatory concerns,” JPMorgan explained.
So far this year, more than 308 SPAC IPOs have raised $100 billion in proceeds, according to data from SPACInsider. In 2020, 248 SPAC IPOs raised $83 billion in proceeds. More SPAC deals were raised in the first quarter of 2021 than all of 2020.
“The acceleration in SPAC activity in Q1 was so strong that was more reminiscent of a peak especially when combined with the emergence of poor quality players and regulatory scrutiny during the first quarter,” JPMorgan said.
New SPAC offerings in April have been almost non-existent, with last week marking the first week with zero new SPAC debuts for the first time since March 2020.