- The acceleration of SPACs suggests a peak for the sector rather than the middle of a boom cycle, JPMorgan says.
- Recent drawdowns in SPAC performance backs up this view, strategists say.
- In 2021 alone, there have been 248 SPAC IPOs.
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The end of the SPAC mania could be near, according to JPMorgan.
In a Friday note a team of quantitative strategists led by Nikolaos Panigirtzoglou said that the pace of SPAC activity in 2021 is indicating the current SPAC cycle may be ending soon.
“This year’s acceleration in SPAC activity has been so strong that [it] is more reminiscent of a peak rather than the beginning or middle of a boom SPAC cycle. This is especially true if one looks at the recent performance of SPACs,” the strategists wrote.
In just 2021 alone, there have been 248 SPAC IPOs, according to SpacInsider. However, according to JPMorgan and Bloomberg data, the performance of SPACs has disappointed in the last month.
The strategists highlighted how SPACs and reverse mergers have been used for decades but appear to come and go in boom and bust cycles. The boom is driven by momentum and imitation from sponsors, investors and target companies looking to take advantage of strong demand, while the bust is driven by the emergence of poor quality players, hype dying down, and regulatory concerns.
The strategists didn’t detail when the peak would end, but said it’s reasonable to assume that the monthly pace of SPAC transactions for the remainder of 2021 will slow.
JPMorgan’s SPAC forecast comes as more investors are sounding the alarm that the rise of blank-check companies has gone too far.
Last month, Berkshire Hathaway vice-chairman Charlie Munger said the SPAC craze “must end badly,” but he isn’t sure when it will happen.
“Crazy speculation in enterprises not even found or picked out yet is a sign of an irritating bubble,” Munger said. “The investment banking profession will sell sh-t as long as sh-t can be sold.”