Wall Street’s affair with blank-cheque companies, the finance fad that pushed companies on to the stock market during the Covid-19 pandemic, ended this year with a string of big bankruptcies and even bigger losses for shareholders.
At least 21 companies that went public by merging with special purpose acquisition companies, or Spacs, went bankrupt this year, according to data compiled by Bloomberg.
Measured from their peak market capitalisations, the insolvencies bookend the loss of more than $46 billion in total equity value.
The failures span money-losing electric vehicle start-ups and forward-thinking farming companies.
Blank-cheque companies were good at propelling their targets to the public market even when they lacked well-formed financials, said Gary Broadbent, an executive guiding former Spac AppHarvest through its liquidation.
Many weren’t “ready for primetime", he said.
Some were more promising than others, but all drew dollars from excitable investors caught up in the Spac craze, including mom-and-pop traders. Plenty of shareholders are now suing Spac sponsors over their losses.
The largest Spac bankruptcies included that of flexible workplace provider WeWork, which had a $9.4 billion market value after going public in 2021. It succumbed to Chapter 11 [of the US bankruptcy code] last month with plans to jettison expensive office leases.
Electric vehicle makers Proterra and Lordstown Motors also enjoyed sizable market values, topping out at about $3.7 billion and $5 billion, respectively, before filing for bankruptcy earlier this year.
Many of these companies sought protection from creditors less than two years after going public. Software firm Near Intelligence filed Chapter 11 in December, less than nine months after its stock debuted on the Nasdaq.
Of course, many predicted the wave of bankruptcies. Critics called the Spac frenzy a bubble soon after it began.
Going public via Spac has historically been faster and faced less scrutiny than traditional initial public offerings. During the boom, companies targeted by blank-cheque firms also often made more optimistic projections about the trajectory of their businesses than would be seen in old-fashioned IPO processes.
Plus, arrangers had incentives to complete less-than-pristine mergers.
Early investors could redeem Spac shares at $10 if they didn’t like the deal, for one.
Excitement over meme stocks and the promise of high valuations encouraged private companies to complete blank-cheque mergers at a rapid pace, said Usha Rodrigues, a law professor at the University of Georgia who has studied Spacs.
The result was a glut of Spacs that Ms Rodrigues described as “a ticking time bomb” of corporate failures that materialised in 2023.
“Everyone should have seen this cliff coming,” she said.
More trouble is probably on the way as higher interest rates affect company balance sheets.
About 140 other former Spacs will probably need more financing in the next year to keep operating, according to data compiled by Bloomberg in mid-December that estimates a company’s cash needs.
Spac companies were also more likely than their corporate peers to raise doubts about their future, according to Hudson Labs, an investment research software company that analyses regulatory filings.
Nearly 44 per cent of Spac companies that filed annual reports in 2023 have reported going-concern warnings compared with about 22 per cent of non-Spac companies, Hudson Labs said.
Some shareholders are hoping lawsuits can help recover their losses.
Lordstown stockholders accused sponsors behind its Spac of overstating demand for its flagship Endurance vehicle. As Lordstown was preparing to go public in 2020, the company touted a backlog of 38,000 vehicle pre-orders. But unlike Tesla and other competitors, Lordstown did not require a deposit and shareholders claim company officials were aware those lofty Endurance pre-orders were unlikely to net actual sales.
Lordstown’s stock fell after short-seller Hindenburg Research accused the company of overstating demand for the Endurance. Lordstown never sold close to the number of Endurance vehicles it had once projected. After the company filed Chapter 11 in June, its chief financial officer testified that the company sold fewer than 40 vehicles.
Lordstown officials and its Spac sponsor have denied wrongdoing. The vehicle maker’s proxy statement disclosed that Endurance pre-orders were not binding and did not require deposits, the company said. Lordstown stockholders were provided enough information to decide for themselves if the stock was worth the risk, they said.
Federal regulators have been slow to respond to the Spac craze, despite Gary Gensler, chairman of the Securities and Exchange Commission, being a vocal critic of the manoeuvre.
In March 2022, the SEC proposed new rules that would require additional disclosures about sponsors and bolster investor protections. Shortly after, Wall Street majors started to distance themselves from deals involving blank-cheque companies and the Spac pipeline dried up.
But the failures keep coming.
Just last week, Bird Global, the company whose electric scooters once blanketed major cities’ sidewalks, filed for Chapter 11 protection. Once the holder of a $2.5 billion market value, the company revealed in court papers it had $3.3 million cash when it entered court protection.
The five pillars of Islam
Europa League group stage draw
Group A: Villarreal, Maccabi Tel Aviv, Astana, Slavia Prague.
Group B: Dynamo Kiev, Young Boys, Partizan Belgrade, Skenderbeu.
Group C: Sporting Braga, Ludogorets, Hoffenheim, Istanbul Basaksehir.
Group D: AC Milan, Austria Vienna , Rijeka, AEK Athens.
Group E: Lyon, Everton, Atalanta, Apollon Limassol.
Group F: FC Copenhagen, Lokomotiv Moscow, Sheriff Tiraspol, FC Zlin.
Group G: Vitoria Plzen, Steaua Bucarest, Hapoel Beer-Sheva, FC Lugano.
Group H: Arsenal, BATE Borisov, Cologne, Red Star Belgrade.
Group I: Salzburg, Marseille, Vitoria Guimaraes, Konyaspor.
Group J: Athletic Bilbao, Hertha Berlin, Zorya Luhansk, Ostersund.
Group K: Lazio, Nice, Zulte Waregem, Vitesse Arnhem.
Group L: Zenit St Petersburg, Real Sociedad, Rosenborg, Vardar
Players Selected for La Liga Trials
U18 Age Group
Name: Ahmed Salam (Malaga)
Position: Right Wing
Nationality: Jordanian
Name: Yahia Iraqi (Malaga)
Position: Left Wing
Nationality: Morocco
Name: Mohammed Bouherrafa (Almeria)
Position: Centre-Midfield
Nationality: French
Name: Mohammed Rajeh (Cadiz)
Position: Striker
Nationality: Jordanian
U16 Age Group
Name: Mehdi Elkhamlichi (Malaga)
Position: Lead Striker
Nationality: Morocco
Challenge Cup result:
1. UAE 3 faults
2. Ireland 9 faults
3. Brazil 11 faults
4. Spain 15 faults
5. Great Britain 17 faults
6. New Zealand 20 faults
7. Italy 26 faults
Dolittle
Director: Stephen Gaghan
Stars: Robert Downey Jr, Michael Sheen
One-and-a-half out of five stars
Gulf Under 19s final
Dubai College A 50-12 Dubai College B
EA Sports FC 26
Publisher: EA Sports
Consoles: PC, PlayStation 4/5, Xbox Series X/S
Rating: 3/5
Take Me Apart
Kelela
(Warp)
Tax authority targets shisha levy evasion
The Federal Tax Authority will track shisha imports with electronic markers to protect customers and ensure levies have been paid.
Khalid Ali Al Bustani, director of the tax authority, on Sunday said the move is to "prevent tax evasion and support the authority’s tax collection efforts".
The scheme’s first phase, which came into effect on 1st January, 2019, covers all types of imported and domestically produced and distributed cigarettes. As of May 1, importing any type of cigarettes without the digital marks will be prohibited.
He said the latest phase will see imported and locally produced shisha tobacco tracked by the final quarter of this year.
"The FTA also maintains ongoing communication with concerned companies, to help them adapt their systems to meet our requirements and coordinate between all parties involved," he said.
As with cigarettes, shisha was hit with a 100 per cent tax in October 2017, though manufacturers and cafes absorbed some of the costs to prevent prices doubling.
Various Artists
Habibi Funk: An Eclectic Selection Of Music From The Arab World (Habibi Funk)
PREMIER LEAGUE FIXTURES
All kick-off times UAE ( 4 GMT)
Saturday
Liverpool v Manchester United - 3.30pm
Burnley v West Ham United - 6pm
Crystal Palace v Chelsea - 6pm
Manchester City v Stoke City - 6pm
Swansea City v Huddersfield Town - 6pm
Tottenham Hotspur v Bournemouth - 6pm
Watford v Arsenal - 8.30pm
Sunday
Brighton and Hove Albion v Everton - 4.30pm
Southampton v Newcastle United - 7pm
Monday
Leicester City v West Bromwich Albion - 11pm
more from Janine di Giovanni
UAE currency: the story behind the money in your pockets
'Worse than a prison sentence'
Marie Byrne, a counsellor who volunteers at the UAE government's mental health crisis helpline, said the ordeal the crew had been through would take time to overcome.
“It was worse than a prison sentence, where at least someone can deal with a set amount of time incarcerated," she said.
“They were living in perpetual mystery as to how their futures would pan out, and what that would be.
“Because of coronavirus, the world is very different now to the one they left, that will also have an impact.
“It will not fully register until they are on dry land. Some have not seen their young children grow up while others will have to rebuild relationships.
“It will be a challenge mentally, and to find other work to support their families as they have been out of circulation for so long. Hopefully they will get the care they need when they get home.”
Who's who in Yemen conflict
Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government
Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council
Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south
Habrish 'rebels': Tribal-backed forces feuding with STC over control of oil in government territory
SPECS
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The%20specs
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About Takalam
Date started: early 2020
Founders: Khawla Hammad and Inas Abu Shashieh
Based: Abu Dhabi
Sector: HealthTech and wellness
Number of staff: 4
Funding to date: Bootstrapped
TCL INFO
Teams:
Punjabi Legends Owners: Inzamam-ul-Haq and Intizar-ul-Haq; Key player: Misbah-ul-Haq
Pakhtoons Owners: Habib Khan and Tajuddin Khan; Key player: Shahid Afridi
Maratha Arabians Owners: Sohail Khan, Ali Tumbi, Parvez Khan; Key player: Virender Sehwag
Bangla Tigers Owners: Shirajuddin Alam, Yasin Choudhary, Neelesh Bhatnager, Anis and Rizwan Sajan; Key player: TBC
Colombo Lions Owners: Sri Lanka Cricket; Key player: TBC
Kerala Kings Owners: Hussain Adam Ali and Shafi Ul Mulk; Key player: Eoin Morgan
Venue Sharjah Cricket Stadium
Format 10 overs per side, matches last for 90 minutes
When December 14-17
The specs: Macan Turbo
Engine: Dual synchronous electric motors
Power: 639hp
Torque: 1,130Nm
Transmission: Single-speed automatic
Touring range: 591km
Price: From Dh412,500
On sale: Deliveries start in October
Brief scores:
Newcastle United 1
Perez 23'
Wolverhampton Rovers 2
Jota 17', Doherty 90' 4
Red cards: Yedlin 57'
Man of the Match: Diogo Jota (Wolves)
The%20specs
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Semi-final fixtures
Portugal v Chile, 7pm, today
Germany v Mexico, 7pm, tomorrow
MOUNTAINHEAD REVIEW
Starring: Ramy Youssef, Steve Carell, Jason Schwartzman
Director: Jesse Armstrong
Rating: 3.5/5
From Europe to the Middle East, economic success brings wealth - and lifestyle diseases
A rise in obesity figures and the need for more public spending is a familiar trend in the developing world as western lifestyles are adopted.
One in five deaths around the world is now caused by bad diet, with obesity the fastest growing global risk. A high body mass index is also the top cause of metabolic diseases relating to death and disability in Kuwait, Qatar and Oman – and second on the list in Bahrain.
In Britain, heart disease, lung cancer and Alzheimer’s remain among the leading causes of death, and people there are spending more time suffering from health problems.
The UK is expected to spend $421.4 billion on healthcare by 2040, up from $239.3 billion in 2014.
And development assistance for health is talking about the financial aid given to governments to support social, environmental development of developing countries.
WOMAN AND CHILD
Director: Saeed Roustaee
Starring: Parinaz Izadyar, Payman Maadi
Rating: 4/5
Lexus LX700h specs
Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
Power: 464hp at 5,200rpm
Torque: 790Nm from 2,000-3,600rpm
Transmission: 10-speed auto
Fuel consumption: 11.7L/100km
On sale: Now
Price: From Dh590,000
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More from Armen Sarkissian
Essentials
The flights
Emirates and Etihad fly direct from the UAE to Los Angeles, from Dh4,975 return, including taxes. The flight time is 16 hours. Alaska Airlines, United Airlines, Delta Air Lines, Aeromexico and Southwest all fly direct from Los Angeles to San Jose del Cabo from Dh1,243 return, including taxes. The flight time is two-and-a-half hours.
The trip
Lindblad Expeditions National Geographic’s eight-day Whales Wilderness itinerary costs from US$6,190 (Dh22,736) per person, twin share, including meals, accommodation and excursions, with departures in March and April 2018.
The biog
Year of birth: 1988
Place of birth: Baghdad
Education: PhD student and co-researcher at Greifswald University, Germany
Hobbies: Ping Pong, swimming, reading
