How the SPAC Era Will End

A fever has swept Wall Street, and it’s stretching all the limits

- Heather Perlberg

Whenever greed meets reality and giddy markets collapse, Wall Street pros usually say they sensed the end was coming. The warning signs were so familiar, they belatedly confess, that it was difficult to believe anyone could miss them. The chain of fools was running out.

This can’t last. Today those sober words are being whispered again in American finance, this time about one of the biggest money grabs in the business, SPACs. Once dismissed as sketchy Wall Street arcana, these publicly traded shells are created for one purpose: to merge with real businesses that really make money. Nowadays everyone who’s anyone seems to be doing one, from Alex Rodriguez to Paul Ryan. The count from the past 15 months stretches to 474 SPACs. Together they’ve raised $156 billion.

Picture GameStop Redditors meet The Wolf of Wall Street, and you get the idea. The celebrity-studded spectacle will prove that either SPACs—officially, special purpose acquisition companies—are transforming the way finance gets done or the market mania is spiraling out of control. Maybe both.

Privately, and increasingly publicly, financial professionals warn this will end badly for the investing public. To cynics, the only questions are when and how badly. More and more members of the SPAC ecosystem—a matrix of hedge funders, private equity dealmakers, bankers, lawyers, and assorted promoters—see the excesses building. They point to you’ve-got-to-be-joking valuations, questionable disclosures, and, most worrisome, a growing misalignment of interests.