SPACs rose and fell from 2020 to 2021, raising over $160 billion. Hyped as a faster IPO alternative, many lacked substance. By late 2022, 77% traded below their issue price. Now, SPACs are quietly returning, but the issues remain.

SPACs attracted retail investors with promises of democratized dealmaking, but many companies had no revenue or functioning products. Due diligence suffered, leading to weak deals. Post-merger, over 60% of SPACs now trade under $5, some down over 90%.

The new batch of SPACs promises better targets and governance, but little has changed. Sponsors still profit regardless of performance, leaving retail investors with underfunded companies. Redemptions weaken structures, and retail investors often get the short end of the stick.

SPACs may seem cheap trading below trust value, but risks remain. Sponsors hold upside through warrants and dilute common shareholders. Thin floats and wild price action create liquidity issues, and dilution further erodes shareholder value.

To navigate the SPAC landscape, focus on the sponsor’s track record, cash available post-redemptions, and insider behavior. Evaluate the business for revenue and profitability, not just projections. Look to cleaner plays like spin-offs or broken IPOs for better upside potential.

SPACs failed due to hype and lack of substance, and their return isn’t a sign of progress. Investors should be cautious and explore opportunities in other areas with stronger alignment and potential for real value.

Read more at Yahoo Finance: SPACs Are Back – You Should Be Worried