SPAC sponsors that ‘piled in’ during boom may face $4 billion tab

The SPAC craze was a goldmine for sponsors like “SPAC King” Chamath Palihapitiya and Howard Lutnick. They were early to the game and benefited from a bull market that bolstered the industry with investors eager to pay large premiums for a pile of cash. Now that the bubble has burst, sponsors who “piled in during the boom in 2021” could lose billions, according to Jay Ritter, Cordell Eminent Scholar. 

“A lot of these fairly sophisticated financial professionals were a bit guilty of chasing past returns,” Ritter said by phone. “Six months from now it might be worthwhile for a sponsor to take a SPAC public, but I’ve been scratching my head for the past 18 months over the rush to spend $8 million to get into an incredibly competitive market.”

Read more insights from Ritter, as well as Ph.D. student Minmo Gahng and Ph.D. alumnus Donghang Zhang, in this story from Bloomberg.