SPACs have shifted from an exciting investment opportunity to another efficient corner of the capital markets. When I wrote SPACs: Croupiers and Incentives, Don’t Just Do Something, Sit There, Air Out of the SPAC Balloon, Follow the SPAC Upside, and Concentration vs. Diversification, I saw lots of value to capture in SPACs. Since April, not so much. The current state of play alongside the recent sale of celebrity podcast Smartless to Amazon for $80 million led to the title of this piece.

SPACs soared in popularity on the heels of a decade-long shift in asset allocation that shrunk the number of publicly listed stocks. Expanding allocations to private market strategies, the resulting availability of capital for businesses to stay private longer, and an increase in public-to-private buyouts on the other end of the spectrum all served to change the composition of ownership. SPACs have been one small answer to fill this void.

That said, the wave of SPAC issuance rose for completely different reasons than the narrative of a need to create more public companies. Mainstream media referred to the large volume of SPACs as a “bubble” that would pop. It failed to understand the nuance that drove IPOs.

SPACs had a few months in the hot sun because public markets welcomed new listings in such a way that begged SPAC sponsors to step up to the plate. Through Q4 2020 and Q1 of 2021, the public markets provided a risk-less arbitrage for IPO investors. SPACs that raised capital at $10 per share opened trading around $10.50. I hypothesized why that might be rational in SPACs: Croupiers and Incentives.

The market dynamic created three ways for hedge funds to make money without taking risk when funding a SPAC IPO. First, they sell the unit (a package of shares and warrants) upon listing for a quick pop. Second, they could wait a few weeks, split the unit, sell the shares for around $10, and retain a five-year warrant at no cost. Third, they could wait for an announced deal and own an implicit option the stock would pop upon an announcement. In each case, their investment held $10 of cash in trust that hedge funds could reclaim down the road if the upside did not play out. It doesn’t take a rocket scientist to understand why 573 SPAC IPOs with $177 billion in proceeds remain listed today, most of which came to market while the arbitrage was in place.

That beautiful music stopped playing in March when the premium over trust value in listed SPACs sold off. Today, SPACs trade a tad below $10. That 5% selloff all but ended the issuance of new SPACs. Why pay $10 on an IPO when you can buy the unit for $9.90 a day later?

The exciting trading opportunities for a public investor in SPACs have all but disappeared. If $10 of cash turns into $10 of value in a business, shareholders will evaluate the companies over time. We no longer see the prior volatility in SPAC names that created so much excitement three months ago. Such is the nature of some nascent vehicles and strategies – attractive while present but fickle in duration.

So what happens next?

Deal announcements picked up in recent weeks, and shares are barely budging upon the news. The option value of excitement over a hot private company entering the public domain has all but disappeared.

I serve on the Advisory Board of a SPAC (NBST). We’ve observed a number of deal announcements in companies where we took a pass. There’s a year 2000 feel to companies that come public with as-of-yet unprofitable and unproven businesses. Stock investors call them “show me” stories. Some will be winners and plenty will be, well, good shorts.

421 SPACs are still hunting for companies to bring public over the next 1.5- 2 years. Sponsors have strong economic incentives to get a deal done, but the markets have cooled in their reception to speculative plays. Additionally, PIPE investors, who are often required to consummate a transaction, are harder to come by as well.

I’ve mostly exited the SPAC market. My portfolio hasn’t changed much since writing Concentration vs Diversification. I hold a few names trading around $10 with “sexy” sponsors (IPOD, IPOF, HMCO, SKYAU and EQD), and I have an investment in a fund playing the space as a cash substitute with optionality to the upside if market conditions change.

For the most part, I’m SPAC-less. I suspect things will get interesting again about a year from now, when the clock gets close to midnight on hundreds of SPACs at the same time. Until then. should some volatility and a little irrationality return, I’d just assume take a call from a SPAC sponsor to buy the Capital Allocators podcast than dive back into the space.