SPAC Redemptions On The Rise


Voodoo SPAConomics has noticed a trend that we would like to highlight. Redemptions are rising rapidly…that is a greater % of investors are turning in their SPAC shares and getting their $10 back from the trust than was occurring previously. Much of this is due to an increasing number of SPACs trading at or below $10. When SPACs are trading above trust value, fewer investors redeem.

High redemption rates can create issues for completing the merger with the target company because the SPAC has less cash in trust to bring to the deal. Targets that are willing to take less cash to get a deal done may be indicating their desperation. Alternatively, sponsors may have to waive minimum cash requirements or find other sources of cash, often resulting in dilutive transactions. Please see below for an example of what we are seeing that occurred yesterday 9/7/21:

Sustainable Opportunities Acquisition Corp (SOAC) raised IPO proceeds of $300mn on May 6, 2020. It then announced a target, DeepGreen Metals, on March 4, 2021 for approximately $2.4bn. $330mn in PIPE money was also raised, bringing the cash total to $630mn. However, SOAC announced today that ONLY $27mn from the IPO was available as >90% of shareholders redeemed their stock for $10/share. Additionally, SOAC has only been able to collect $110mn of the $330mn PIPE and says that while it is seeking to enforce the funding obligations, there can be no assurances of its success in doing so. The inability to collect money raised in a PIPE is rare and is something we will be watching to see if it becomes a trend. DeepGreen is waiving the closing condition that cash would need to equal $250mn or more since SOAC only has $137mn of cash right now. Shares rose 17% the day of the announcement.

In our opinion, we believe part of this increase in the stock price may be due to a type of short squeeze where investors are short stock, the SPAC shareholders redeem over 90% of the shares, forcing shorts to cover as those shares that have been redeemed can no longer be borrowed. We have seen a number of scenarios like this in the past month.

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