This week, four blank check companies filed amendments with the SEC to remove warrants ahead of their prospective IPOs. Lerer Hippeau Acquisition (LHAA), Vector Acquisition II (VAQC), SVF Investment 2 (SVFB), and SVF Investment 3 (SVFC) will now offer common shares only, rather than the units they originally filed to offer.
The teams behind these four names have previously taken SPACs public, though none have completed mergers. Vector’s first SPAC Vector Acquisition I (VACQ; +13 from offer) is pending a combination with Rocket Lab, while Ben Lerer’s Group Nine Acquisition (GNACU +2%) and SoftBank’s SVF Investment Corp. (SVFAU; +21%) are still looking, having only completed their offerings in January.
Historically, warrantless SPACs have only been viable for an elite group; of the nine SPACs that began trading on Thursday the only one that finished positive was also the only one without warrants (KVSA).
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SPACs typically need warrants to entice IPO investors, but soaring stock prices at the merger announcement have generated enough demand for new issues that sponsors have been able to reduce fractional warrants or ditch them entirely. In the past year, 59 SPACs filed or priced IPOs without warrants, 24 of which are currently trading. In the past two weeks alone, five SPACs filed without warrants (RGAC, RACB, FLSU.RC, TRTL, KVSD).
Public warrants can be a thorn in the side of SPAC managers; at the negotiating table, target companies are sensitive to large overhangs of potentially dilutive stock, which can put downward pressure on the share price post-merger.
However, if the SPACs continue to break issue like they did on Thursday, more sponsors may be forced to bring back warrants.