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Who Will Be Scrambling for Their Shorts When the SPAC High Tide Rolls Out?

The Business of Business

As fun as it is right now, we know the SPAC madness is going to end. The only questions are when, and who will be left holding the bag. 

“When” is hard to answer, but it’s becoming increasingly clear who’s going to be stuck with the bill when this party is finally over. SPAC sponsors will for the most part be fine, and probably better off for their adventures. Initial investors who hold on to their shares through a merger, or redeem them if no deal happens aren’t likely to end up worse for wear. However, secondary investors could be in for a gut punch.

“Who’s going to get hurt are people speculating on a deal getting done, and bidding up the price,” Brad L. Shiffman, a deal lawyer with Blank Rome, told me in a phone call last week.


Both Shiffman and Ellenoff have been in the SPAC business since way before the investment vehicles were hip, long enough to have a firm handle on the trends. I first talked to both of them in September 2009, for an article I wrote about challenges in SPACs following the Great Recession. 

The vehicles were created by investment banker David Nussbaum and lawyer David Miller in 1993, according to the Wall Street Journal. Founders see them as a disruptive alternative to traditional IPOs, enhancing their popularity of late.

Looking back on the 2008 crash is instructive for understanding what could happen when SPACs eventually lose momentum, Shiffman explained to me over the phone last week. There is some built-in mitigation of downside risk in the event things don't work out as planned.

“What happens is the money gets returned if the SPAC can’t get its business deal done,” he said. “It’s a great protection for investors.”

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“Who Will Be Scrambling for Their Shorts When the SPAC High Tide Rolls Out?” by Christie Smythe was published in The Business of Business on March 16, 2021.