Palihapitiya to end two SPACs as choppy markets drag valuations

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

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Sep 20 (Reuters) – Prolific investor SPAC Chamath Palihapitiya is terminating two of his blank check firms after failing to find suitable merger targets on time, as choppy markets dampen investor sentiment for the companies. once high-flying acquisition vehicles.

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

The two shell companies won’t be able to make deals by October 14, after which they will shut down, according to regulatory filings. SPACs generally have up to two years from the listing date of their shares to complete a merger.

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

“Over the past two years, we’ve evaluated over 100 targets and although we’ve come close to making a deal several times, we’ve backed out every time,” Palihapitiya said.

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

A hallmark of transactions in the pandemic era, SPACs have become hugely popular in 2020, attracting veterans such as former Citigroup banker Michael Klein, fintech entrepreneur Betsy Cohen and Palihapitiya.

Investment vehicles earn big returns for their sponsors, who typically collect one-fifth of a SPAC’s shares after a merger closes.

The lucrative price, known as the “promotion”, is in exchange for bearing the cost of bringing the shell company to the point of an IPO. But the practice has been criticized by some investors and lawmakers.

Stubbornly high inflation, Federal Reserve rate hikes and regulatory repression have also sapped appetite for SPACs. BuzzFeed Inc (BZFD.O) and Grab Holdings Ltd, some of the most prominent companies to merge with SPACs, have lost more than 50% of their market value so far this year.

Others, like 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. Read more

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

Our standards: The Thomson Reuters Trust Principles.

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