The Great SPAC Crash of 2020

The year it was at its peak, two years ago SPACs were all the rage. Many local markets were shut down and they appeared to offer great growth potential. In reality, the promise proved untrustworthy.

   Tthe store's going out of business sale. (Photo by Robert Alexander/Getty Images) 
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The store's going out of business sale. (Photo by Robert Alexander/Getty Images)

The stock market remains depressed, but the reason is not what most investors think. A valuation bubble is bursting, and this process has a long way to go.

ENJY, a retail startup, announced that it will file for bankruptcy in the next few months. The company listed its shares via a special purpose acquisition company merger last year.


When the world was gripped by the global pandemic two years ago, SPACs were all the rage. The entire global economy was shut down and so-called blank check companies seemed to offer exciting growth prospects. Sadly, that promise proved to be false.

In the past, companies had to endure years of venture capital hell before they could go public. Startups have to raise several rounds of funding to stop the tide of red ink as executives attempt to grow the business toward profitability. The initial public offering is a reward for management's success and a sign that Wall Street investment bankers are willing to endorse the underlying enterprise.

Most SPACs are different.

A stock promoter/financier can file for a public listing on a major exchange to side-step Securities and Exchange Commission filing requirements. The merger of the blank check company with an existing business is known as a direct listing, which occurs when there is no underwriter. Investors have no one vetting their interests.

During 2020 and 2021, there were 248 and 613 SPAC deals, respectively. Many immature companies were being rushed to the public market with little more than an idea and a sales pitch. Investors should not be surprised that the process ended poorly. It was all a scam.

Speaking with Bloomberg Technology one year ago, Ron Johnson, chief executive at Enjoy, claimed that the company had a clear view of profitability. And documents submitted to the SEC projected net earnings by 2023, and $1 billion in sales two years later.

It was always a tough task.

Palo Alto, California-based company was delivering mobile phones on behalf of AT&T (T), British Telecom, Rogers Communications (RCI), and Apple. Enjoy agents upsold additional products or services to customers. The model was never profitable. Gross margins were in the red at -34.5% by the end of 2021, with losses of $158 million.

Despite the success of its SPAC merger with Marquee Raine Acquisition Corp., Enjoy was unable to turn around its fortunes and filed for bankruptcy in December 2023.

Sadly, other SPACs are heading down a similar path. Bloomberg noted in June that 65 of these companies will need to raise more capital within the next year simply to keep the lights on. Of the 613 SPACs listed in 2021, 78 now trade at $2 per share or less; 25 of these are trading at less than $1, the threshold to maintain a listing on Nasdaq stock exchange

DSPC is a fund that tracks SPACs. It has lost 67.7% over the past year, and it's down 78% over the last 12 months.

The market's perception of the company's worth has changed.

Wall Street investment dealers and TV talking heads blame the SEC for investor losses, but that's like blaming the police for crime. It's smarter to follow the money. Many SPACs should never have become publicly listed firms. Wall Street, financiers, and greedy executives exploited a loophole to push these stocks onto unwary investors. The financial press breathed life into SPACs with breathless stories about rising prices.

The story of Enjoy Technology is a hard, but vital lesson for investors. Valuations are important, especially with businesses that don't make a profit. Many SPACs will never return.

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