ICR, the leading SPAC communications and consulting firm, releases the Q4 2022 SPAC Market Update

The SPAC market remains a viable route for companies to access the public markets given the challenging IPO market environment

The Department of Treasury publishes guidance on the repurchase tax and its impact on SPAC redemptions

NEW YORK, Jan. 4, 2023–(BUSINESS WIRE)–ICR, a leading strategic communications and advisory firm, today released its Q4 2022 SPAC Market Update Report.

SPAC IPOs have slowed as the market faced the backlog of falling valuations, regulatory uncertainty and the upcoming SPAC maturity wall. SPAC’s average IPO size has fallen from $280 million in 2020 to $140 million in 2022, a 50% decline as smaller size can increase the target pool and improve merger momentum. Despite this, the SPAC teams are still making deals, despite a trend for withdrawals and then liquidations in the fourth quarter.

“Despite a challenging environment, the SPAC market has remained a viable avenue for companies to access the public markets and growth capital in a year in which the IPO market has been essentially closed,” said Don Duffy, President of ICR. “With clarity from the Treasury on the excise tax on buybacks and how it affects redemptions, we expect 2023 to ‘normalise’ the number of SPAC IPOs at 5 to 6 per month with a lower average deal size. We also expect to see an acceleration in merger announcements based on the number of SPACs remaining in the market. In an environment where capital is scarce and transaction execution is critical, it is more important than ever to have an experienced advisor who can work with sponsors and target companies to create value in a SPAC transaction through capital markets expertise, investor relations , deal communication and PR strategies.”

The 2022 calendar was the slowest year for IPO activity in the past thirty years, with IPO proceeds of less than $7 billion compared to a record $136 billion in 2021 As evidenced by the fact that four mega IPOs took place – TPG, Bausch & Lomb, Corebridge Financial and Mobileye – accounted for over 50% of the IPO proceeds generated in 2022.

The story goes on

“Elevated levels of inflation not seen in over forty years, historic levels of central bank rate hikes and looming fears of a recession underpin challenging market conditions in the near term,” said Michael Goldberg, who joined ICR Capital in 2022 from his predecessor came role as Global Head of ECM at RBC Capital Markets. “Nevertheless, follow-on and convertible bonds increased in Q4 2022, reflecting investors’ appetite for investment opportunities in experienced companies at reasonable valuations. Looking ahead to 2023, IPO activity is expected to pick up mid-year following more information on corporate profitability, GDP, inflation and interest rates. Fortunately, there is a large backlog of companies willing to go to market once conditions improve.”

Redemption rates remained elevated throughout 2022 as participants weighed volatile valuations, limited funding availability and regulatory risks. As a result, sponsors continued to focus on mature companies with limited funding needs. However, these destinations often had more complicated capital structures and vendors seeking partial monetization. Despite the challenging environment, sponsors with enough time to close a deal remain optimistic about 2023.

“During Q4, nearly as many SPACs extended maturities as liquidated early, a sign of confidence in their ability to close compelling deals in 2023,” said Niren Nazareth, Managing Director, ICR Capital. “Given our unparalleled market reach, we have helped many teams think through the critical path to completing a successful business combination given market conditions and the complexity of the capital structure. In addition, we actively advise SPACs and target companies on how to manage post-merger liquidity risk on their go-public business plan and meet potential liquidity needs.”

The U.S. Treasury Department issued excise tax guidance on December 27, 2022, which can be found here. The guidance clarified that SPACs completing a liquidation and dissolution are exempt from excise duty. Unfortunately, withdrawals related to a renewal vote or a de-SPAC merger vote are not exempt at this time. However, such redemptions may benefit from the netting rule which ‘nets’ repurchased shares and reduces them by the fair market value of all shares in issue. However, ambiguity surrounding the excise duty prompted sponsors to bring forward their renewal deadlines and liquidate ahead of schedule to avoid a potential tax liability in 2023.

ICR is the largest advisor and communications advisor to SPACs and has worked on around 150 transactions since 2021. To obtain a copy of ICR’s Q4 2022 SPAC Market Update Report, please click here.

About ICR

Founded in 1998, ICR partners with clients to deliver strategic communications and consulting programs that achieve business goals, build awareness and credibility, and increase long-term organizational value. The company’s highly differentiated service model, which brings together capital markets veterans with senior communications professionals, brings deep industry knowledge and relationships to approximately 1,000 clients across more than 20 industry groups. ICR’s healthcare practice operates under the Westwicke brand (www.westwicke.com). Today, ICR is one of the largest and most experienced independent communications and consulting firms in North America, with offices in New York, Norwalk, Boston, Baltimore and Beijing. Learn more at www.icrinc.com. Follow us on Twitter at @ICRPR.

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contacts

Brian Ruby, ICR, 203-682-8268, [email protected]