The recent boom in blank-check IPOs is raising hopes for some investors and eyebrows for others.

After the boom years of 2019 and 2020, there are plenty of special purpose acquisition company sponsors and investors who have minted cash on the deal structure, which involves the IPO of a holding company and the subsequent merger of that company with an operating entity. But it is unclear whether 2021's run of new SPAC sponsors will find the merger partners they need, and even if they do, whether investors will hold the same appetite for growth companies that propelled tech and tech-focused media equities to new valuation heights in 2020.

Already some of the most high-profile SPACs are running in the red, even as deal activity reaches a fever pitch, according to data from S&P Global Market Intelligence and its analytics offering 451 Research.

Big names, big deals

SPAC deals over the past two years include some of the biggest startups in tech and media. For example, online news and entertainment platform Buzzfeed Inc. began considering a SPAC merger with 890 5th Avenue Partners Inc., according to Bloomberg News. Elsewhere, online genetic testing company 23andMe Inc. recently announced a merger with VG Acquisition Corp.

But it seems SPAC investors are beginning to regard even the most high-profile with some measured caution. Shares of VG Acquisition soared going into the Feb. 4 announcement, and then crumbled when deal terms were disclosed. It closed at $10.58 on March 16, barely up from its $10 IPO price. Shares of 890 5th Avenue Partners barely even responded to the Buzzfeed revelation, with the holding company still under $10 a share as of the March 16 close.

This stands in contrast to the exuberance that marked the beginning of the SPAC boom. For example, online sports platform DraftKings Inc. is an early success story. A big entry by celebrity investor George Soros during the quarter it merged with its SPAC Diamond Eagle Acquisition Corp. helped propel that stock to about 6x the SPAC IPO price. Online gaming platform Skillz Inc. has also performed well following its acquisition by Flying Eagle Acquisition Corp. at the end of 2020, trading at about 3x its value.

The executives behind Diamond Eagle and Flying Eagle, former media executives Harry Sloan and Jeff Sagansky, are at it again. The pair has raised $1.75 billion for Soaring Eagle Acquisition Corp. This will be their seventh and largest SPAC. Their involvement in the space extends back to 2011 with Golden Eagle Acquisition Corp., which is now undergoing bankruptcy negotiations following the failure of its operating company, airline internet provider Row 44 Inc. Another one of their SPACs merged with Indian media company Videocon d2h, which was later acquired by an Indian unit of DISH Network Corp. under the SPAC IPO price.

Beginning of the boom

These stories of wild success and crushing failure are rampant in the world of SPACs. To illustrate the arch of the SPAC trend, consider Churchill Capital’s first SPAC deal with data analytics firm Clarivate PLC in May 2019. SPACs were considered with some suspicion among the investment and underwriting community before 2019. There have been more SPAC merger deals announced in 2021 than in the seven years between 2012 and 2019.

Clarivate was the "tipping point" for the current boom in tech and media SPAC interest, said Rajiv Shukla — chairman and CEO of SPAC Alpha Healthcare Acquisition Corp., which recently announced a merger with Humacyte Inc. and saw its shares catapult upon the announcement.

"What led to tech deals really taking off? It's the same story across the SPAC space. You need one big win for people to wake up and say, 'Wow, this is great,' and that one big win was Clarivate," Shukla said.

After Clarivate merged with its SPAC partner, Churchill Capital, its stock just kept climbing. It closed at $25.75 as of March 16, up from its $10 IPO price.

The Clarivate story "really started to make the tech space go live with activity," Shukla said. "It blew in some real luminaries in the space."

Banking on tech

Since then, a third of all SPAC listings have stated a tech or media target in both 2020 and 2021, and that comes amid record SPAC activity. Further, SPACs are not relegated to enterprising individuals looking for arbitrage, but offered by the biggest banks, private equity firms and celebrity investors. Citigroup Inc., Credit Suisse and Goldman Sachs Group Inc. were the top three SPAC underwriters in 2020 and 2021, with 96, 75 and 64 deals listed, according to SPAC Research.

Not too long ago, SPAC sponsors had to fish deep into the banking world for an underwriter. In 2016 and 2017, the biggest underwriters were I-Bankers Securities Inc., Chardan Corp. and EarlyBirdCapital Inc.

However, just because there are big underwriters and big names celebrating the model, does not mean investors should buy in with abandon, Shukla said.

Shukla is a partner with SPAC Research, and that data firm tracks the "dispersion," or range of share prices, of SPAC listings in a given sector. Dispersion can be easily compared sector by sector since SPACs IPO almost exclusively at $10 per share.

By this metric, tech is relatively healthy. It is not the best performing sector by any means, trading at about $11 on average, but it displays a wide spread of share prices, meaning investors are applying some company-by-company discretion.

However, many tech companies are classified as automotive, targeting the future of mobility and autonomy with various artificial intelligence, optical and connective technologies, and that automotive category displays the lowest dispersion with high valuations.

The executives behind Clarivate's original SPAC sponsor, Churchill Capital, are playing in that same automotive space in another high-profile deal to acquire Lucid Motors USA Inc., and it is benefiting from the exuberance behind the sector. Shares of the SPAC involved, Churchill Capital Corp IV, closed March 16 at more than $31 after a big run-up on the Lucid announcement.

However, despite the success of Lucid and the distinction of helping launch the boom in tech SPACs with the Clarivate deal, the Churchill sponsors further illustrate the volatility in the space and the increasing skepticism behind the boom. Its third fund, Churchill Capital III, merged with healthcare data firm MultiPlan Corp. in October 2020, and it closed at $6.30 on March 16. Churchill Capital Corp II closed March 16 at just $10.04 after announcing a merger with Software Luxembourg Holding SA.

Churchill Capital Corp V, Churchill Capital Corp VI and Churchill Capital Corp VII have yet to announce merger partners, and the same is true for many other serial merger sponsors that have launched funds in 2020 and 2021. For each, it is increasingly uncertain if there will be enough companies to fill their shells.