A Wall Street wheeze makes a surprising comeback

THE SPecial-purpose acquisition company (SPAC) was Wall Street’s favourite get-richer-quicker scheme during the pandemic. First, some big-shot investor raises capital by listing a shell company on the stockmarket. The big shot then calls around other big shots, looking for a moonshot. When a captivating private company is found, it merges with the shell, whose investors choose either to redeem their shares or own part of the resulting business. SPACs can be a wheeze for the sponsors who set them up (in return for a cut) and the investment bankers who advise them, but have tended to be less good for investors who pay these costs.

Central banks raised interest rates in 2022, ending a party that was already flagging. Most thought SPACs were gone for ever. Yet there will be more new listings this year than in 2023 and 2024 combined (see chart). Is history repeating itself? Perhaps as farce. The spac revival will be smaller, but even more speculative—and infused with MAGA energy.

Plenty of investors were burned last time round. An index which tracked the performance of the biggest firms that went public through a spac shut down last year. Of the 25 firms it contained in mid-2021, only one is worth more than it was back then. Six have gone bankrupt.

For some financiers, the memory of this might be too fresh. But not all. Chamath Palihapitiya, a boosterish Silicon Valley podcaster once known as the “SPAC king” for his many vehicles, has said he will “probably” raise a new one. Some private companies and investors might decide to play along. Many venture capitalists are struggling to return cash to their backers, creating pressure to push the startups they have invested in onto public markets.

The sorts of buzzy firms turning to a SPAC as a short-cut to listing will differ from last time. Whereas delivery apps and electric vehicles were the stars of the first wave, cryptocurrency and artificial intelligence are the rage these days. Both industries have their fair share of chancers. In April Twenty One Capital, whose main objective is the accumulation of bitcoin, announced plans to merge with a SPAC connected to Cantor Fitzgerald, the Wall Street bank which has been busily underwriting recent SPAC deals and, until earlier this year, was owned and run by Howard Lutnick, now the commerce secretary.

Trumpworld has always been beguiled by SPACs. Before Donald Trump’s recent adventures into crypto and ETFs, the president took Truth Social, his social network, public by merging with a SPAC. Others in his orbit are now cashing in. Devin Nunes, boss of Truth Social and an adviser to the president, launched a SPAC of his own in May. GrabAGun, an online arms dealer, will soon combine with a SPAC run by Omeed Malik, another Trump acolyte. When the deal closes, Donald Trump junior will join the board. GrabAGun’s prospects are bright given “the insanity that’s going on in the world”, he recently told CNBC. You can say that again. ■