Once dismissed as speculative shortcuts, SPACs have evolved into a legitimate financing tool, especially for early-stage biotech. SL Bio’s $5.7B SPAC merger highlights why firms with long timelines and uncertain revenue may trade dilution and misaligned incentives for speed, certainty, and survival.
Once thought of as fraudulent blank check companies used for money schemes, Special Purpose Acquisition Companies (SPACs) have come a long way; undergoing several rounds of scrutiny and regulation to become respectable in modern day Mergers and Acquisitions.
They became especially popular in 2020 as interest rates fell and stock market volatility rose. SPACs during this era were commonly led by sponsors with long, trustworthy investment histories which helped them gain shareholder trust. Additionally, regular investors had a difficult time assessing business prospects or future earnings with the uncertain environment of the COVID-19 pandemic; sponsors mitigated some of that risk by acting as intermediaries.
Who Uses SPACs and Why?
SPAC use peaked in 2021, raising $95 billion in the first quarter alone. A $12 billion increase from the year before. It was a great option in an uncertain time, many investors thought that with the volatility of the market, SPACs were a comparatively better option.
