Palihapitiya to wind down two SPACs as choppy markets drag valuations

Chamath Palihapitiya, founder and CEO of Social Capital, speaks during the Sohn Investment Conference in New York City, U.S. May 8, 2017. REUTERS/Brendan McDermid

20 September (Reuters) – Prolific SPAC investor Chamath Palihapitiya is winding up two of its blank check firms after failing to find suitable merger targets by the deadline, as troubled markets dampen investor sentiment for the once-high-flying acquisition vehicles.

Social Capital Hedosophia Holdings Corp IV (IPOD.N) and Social Capital Hedosophia Holdings Corp VI (IPOF.N) will return the funds raised to shareholders, Palihapitiya said in a blog post on Tuesday. (https://bit.ly/3RZxOvR)

The two letterbox companies will not be able to do business until October 14, after which they will be closed, according to official documents. SPACs typically have up to two years from the time they list their shares to complete a merger.

The companies went public in October 2020, raising $460 million and $1.15 billion, respectively, to invest in companies in the technology sector.

“In the past two years we have evaluated more than 100 targets and although we have come close to making a deal several times, we have ultimately backed out each time,” Palihapitiya said.

In the past, Palihapitiya’s SPACs have partnered with a number of companies, including space tourism company Virgin Galactic Holdings Inc and online lending startup SoFi Technologies Inc (SOFI.O).

SPACs, one of the hallmarks of businesses in the pandemic era, became immensely popular in 2020, attracting veterans like former Citigroup banker Michael Klein, fintech entrepreneur Betsy Cohen and Palihapitiya.

The investment vehicles reap hefty returns for their sponsors, who typically collect one-fifth of SPAC’s stock after a merger closes.

The lucrative prize, known as “Promote,” is in exchange for bearing the expense of bringing the shell company to the point of an IPO. But the practice has drawn criticism from some investors and lawmakers.

Persistently high inflation, US Federal Reserve rate hikes and regulator crackdowns have also sapped the appetite for SPACs. BuzzFeed Inc (BZFD.O) and Grab Holdings Ltd, some of the most notable companies to merge with SPACs, have lost over 50% of their market value so far this year.

Others such as business magazine Forbes and online ticketing company SeatGeek have abandoned their SPAC mergers.

Billionaire investor William Ackman, who raised $4 billion in the biggest SPAC ever, also told investors in July he would return the sum after failing to find a suitable target. Continue reading

Reporting by Mehnaz Yasmin and Niket Nishant in Bengaluru; Edited by Shounak Dasgupta and Shinjini Ganguli

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