It’s been a difficult year for special purpose acquisition companies (SPACs). They were recently dealt another blow by one of the most prominent names in the SPAC community. Noted investor Bill Ackman of Pershing Square Capital made an important announcement. His SPAC Pershing Square Tontine Holdings (NYSE:PSTH) is winding down.
As of July 26, the $4 billion will be returned to investors. InvestorPlace contributor Larry Ramer reports that “for each share of PSTH stock, investors will receive 0.5 of the new warrants. Meanwhile, owners of Pershing Square Tontine warrants will receive an equal number of the new warrants.”
This news is likely to cast even more uncertainty over the SPAC market. It’s no secret that investors have been souring on SPACs for months as the momentum that made them a sensation in 2021 fades. Ackman’s reasoning certainly makes sense. PSTH has managed to rise only 1% in the past six months. Other SPACs have demonstrated similar patterns as investor confidence wains.
Let’s take a look at a few other stocks that investors would be well served to avoid in a post-SPAC-mania market.
Social Capital Hedosophia Holdings Corp VI
|IPOD||Social Capital Hedosophia Holdings Corp IV||$9.94|
|DWAC||Digital World Acquisition Corp||$27.61|
SPAC Stocks to Avoid: Social Capital Hedosophia Holdings Corp VI (IPOF)
“Investors have just 93 days for IPOF stock to deliver,” reports InvestorPlace News Writer Eddie Pan. That’s the length of time until the company’s Oct. 14 deadline to find a company to merge with. The SPAC, founded by famed SPAC champion Chamath Palihapitiya, hasn’t issued any recent updates on potential merger partners. As Pan notes, investors are becoming nervous. It’s never good news when a company has a make-it-or-break-it deadline upon which everything hangs. Plus, the stock’s volatility isn’t helping.
On top of that, the recent news regarding PSTH stock is likely to prompt even more investors to jump ship before the SPAC boom goes completely bust. In 2021, it seemed likely that IPOF had found its partner in fitness chain Equinox Group. Since that deal fell apart over valuation complications, no progress has been made.
Social Capital Hedosophia Holdings Corp IV (IPOD)
In May 2021, InvestorPlace contributor Faizan Farooque ranked Palihapitiya’s other company among SPACs that needed to find a partner before time ran out. While Farooque acknowledged Palihapitiya’s power in the space, he emphasized the importance of quickly merging.
Over a year later, that is even more true. The company has not made any real progress, and now the deadline pressure has only increased. Like IPOF, IPOD has until Oct. 14 to find a partner. Also like its sister company, it has not offered any updates to reassure investors. Barron’s reports that both companies declined to comment on the looming deadline. Now that SPAC mania has died down, it is even less likely that either company will find a partner. Neither one could do it when Wall Street liked SPACs. Now that it doesn’t, both are likely to go the way of PSTH.
SPAC Stocks to Avoid: Digital World Acquisition Corp (DWAC)
This household name doesn’t have Palihapitiya on its side. Instead, it is dependent on former President Donald Trump and his social network Truth Social, which may be worse. The SPAC partner of the Trump Media & Technology Group (TMTG) has been on a wild ride since the spring 2022 launch of Truth Social.
While Elon Musk backing out of his Twitter (NYSE:TWTR) acquisition helped boost DWAC this week, it is still down 27% for the month and almost 60% for the past six months. With this type of volatility, it is hard to be bullish on such a turbulent name in a market that doesn’t favor SPAC stocks.
Investors also have plenty of reason to suspect that DWAC will never successfully close its merger with TMTG. In April, short seller Kerrisdale Capital issued a damning report in which it made a highly bearish case for DWAC. At the core of the short report’s argument was the thesis that the merger would not happen. Since then, DWAC’s partner has been hit with multiple subpoenas, further calling its future into question. Everything facing DWAC strengthens the case that it is one of the worst SPAC stocks.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.