July 2023 Quarterly InsightsCategory

Acquiring a Stressed Company Trading Below Its Net Cash Balance As an Alternative Source of Financing

By Debt Advisory & Restructuring Team
1 min read

The 2020 and 2021 boom in SPAC fundraising – where the market saw a combined 861 SPAC IPOs, and the wave of De-SPAC transactions that followed – resulted in a meaningful number of companies with significant cash balances and little to no debt on their balance sheets. 

Those cash balances were intended to finance the growth and development of those businesses. However, economic headwinds in 2022 and 2023 raised questions about the viability of certain business models and led to depressed equity valuations across much of the De-SPAC universe. The Bloomberg De-SPAC index indicates a decline of approximately 80% over the last three years. Yet, many of those same firms still have meaningful cash balances and are trading (on a total market capitalization basis) at 60-90% below their net cash balances.

Public companies with financing needs could consider targeting one of these companies for acquisition as a potential alternative to more traditional financing structures. Through a stock-for-stock acquisition, the acquirer could use its equity currency to boost liquidity and potentially acquire attractive assets in a capital-efficient transaction.

(Sources: S&P and Statista data on SPAC IPOs for 2020/2021 & Bloomberg De-SPAC Index data for 2020 - 2023)