Spec Boom... The Largest Global M&A in 41 Years

$1.3 Trillion in Q1... Concerns Over Cooling Investment Sentiment

[Image source= UPI Yonhap News]

[Asia Economy Reporter Park Byung-hee] As the investment frenzy in Special Purpose Acquisition Companies (SPACs) heats up, the number of mergers and acquisitions (M&A) worldwide in the first quarter reached the highest level in 41 years.

According to a survey by financial information firm Refinitiv on the 31st (local time), the global M&A deal volume in the first quarter of this year totaled $1.3 trillion, the largest since 1980.

In particular, M&A activity in the U.S. market surged 160% compared to the first quarter of last year, reaching $654 billion, driving growth in the global M&A market. Among the M&A deals completed in the U.S. market, those related to SPACs amounted to $172 billion, accounting for more than one-quarter of the total. With the surge in M&A, investment banks earned over $37 billion in fees in the first quarter alone, the highest level in at least 20 years.

The global financial market experienced a true SPAC frenzy in the first quarter of this year. According to SPAC market analysis firm SPAC Research, investment inflows into the SPAC market exceeded $95 billion (approximately 107 trillion won) in the first quarter. The SPAC market attracted a record-breaking $80 billion throughout last year, but this year surpassed that annual record in just one quarter.

However, The Wall Street Journal (WSJ) warned that SPAC investment sentiment may cool down in the future, as the expected returns from SPAC investments are rapidly declining.

According to analysis by Professor Jay Ritter of the University of Florida, the average stock price increase on the first day of listing for companies merged with SPACs was 6.1% in January, 5.4% in February, but sharply dropped to 0.1% in March. This is due to the disappearance of the positive effects from U.S. President Joe Biden’s economic stimulus law, which had driven the New York stock market’s rise earlier this year, coupled with rising U.S. Treasury yields increasing investor anxiety.

Recently, there has been an increase in cases where the stock price of SPAC merged companies on the first day of listing falls below the offering price. This contrasts with the period from November last year to February this year, when 231 SPAC merged companies consecutively closed their first day of trading above the offering price. Concerns that SPAC investment has overheated excessively are mounting, and signs of regulatory tightening by authorities are emerging as a burden. Listings through SPAC mergers are effectively reverse takeovers, subject to looser regulations than listings through initial public offerings (IPOs). Consequently, there have been repeated warnings that investors who invested in recently overvalued SPACs could suffer losses.