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The
development is a major setback for the prominent hedge fund
manager who had initially planned for the SPAC to take a stake
in Universal Music Group last year when these investment
vehicles were all the rage on Wall Street.
In a letter sent to shareholders on Monday, Ackman highlighted
numerous factors, including adverse market conditions and strong
competition from traditional initial public offerings (IPOs),
that thwarted his efforts to find a suitable company to merge
his SPAC with.
"High quality and profitable durable growth companies can
generally postpone their timing to go public until market
conditions are more favorable, which limited the universe of
high-quality possible deals for PSTH, particularly during the
last 12 months," said Ackman, referring to the ticker symbol for
his SPAC.
In July 2020, Pershing Square Tontine raised $4 billion in its
initial public offering and wooed prominent investors ranging
from hedge fund Baupost Group, Canadian pension fund Ontario
Teachers and mutual fund company T. Rowe Price Group.
SPACs, also known as blank-check companies, are publicly-listed
shells of cash that are created by large investors - known as
sponsors - for the sole purpose of merging with a private
company. The process, which is similar to a reverse merger,
takes the target company public.
SPACs peaked during 2020 and the early part of 2021, helping
rake in paper gains worth hundreds of millions of dollars for a
number of prominent SPAC creators like Michael Klein and Chamath
Palihapitiya.
However, over the past year, companies that merged with SPACs
have performed poorly, forcing investors to shun blank-check
deals. That coupled with tighter regulatory scrutiny and a
downturn in equity markets have practically shut down the SPAC
economy, with several billions of dollars at stake.
Moreover, the record-breaking performance of regular IPOs in the
United States in 2021 posed competitive challenges for SPAC
sponsors like Ackman, as several richly valued startups chose to
list their shares on exchanges through traditional routes
instead.
"The rapid recovery of the capital markets and our economy were
good for America but unfortunate for PSTH, as it made the
conventional IPO market a strong competitor and a preferred
alternative for high-quality businesses seeking to go public,"
Ackman said.
In July last year, Ackman's efforts to take a 10% stake in
Universal Music, which was being spun off by French media
conglomerate Vivendi, through his SPAC were derailed due to
regulatory hurdles. The U.S. Securities and Exchange Commission
objected to the deal and Ackman put the investment into his
hedge fund instead.
"While there were transactions that were potentially actionable
for PSTH during the past year, none of them met our investment
criteria," Ackman said.
(Reporting by Svea Herbst-Bayliss; Editing by Sriraj Kalluvila
and Muralikumar Anantharaman)
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