Three of the top four special purpose acquisition company underwriters over the 12 months ended June 30 have announced plans to pause activities in the space, in a retreat that could create an opportunity for other firms.

Citigroup Global Markets Inc., which ranked first in SPAC deal credit over the period, according to S&P Global Market Intelligence data, has paused its SPAC business while it digests tighter proposed SEC disclosure rules, Bloomberg News reported in April. Goldman Sachs & Co. LLC and BofA Securities Inc. — ranked third and fourth in S&P Global Market Intelligence data — also announced plans in May to temporarily pause and scale back, respectively, from the SPAC market, according to the news service.

Citi, Goldman Sachs and BofA combined for 140 SPAC offerings in the first four months of 2021 when the SPAC market was ablaze. From July 1, 2021, through June 30, 2022, the three companies combined for just 67 offerings. The market for SPAC IPOs in general has fallen to earth after soaring in 2021. Through June 30, there were 70 such deals in the U.S., well off the pace from 2021, when there were 540 over the full year.

BofA, Citi and Goldman Sachs did not respond to Market Intelligence's request for comment regarding SPAC plans. If the pullback continues, it could allow smaller underwriters to move up the chart. Most bulge bracket firms' retreat from the SPAC space presents "an opportunity," George Kaufman, head of investment banking at Chardan Capital Markets LLC, said in an email. The firm ranked 16th in total SPAC issuance with $1.63 billion in deal credit over the 12 months ended June 30.

Chill in activity

The top underwriter of SPAC issuance activity over the previous four full quarters as of June 30 was Citi, which worked on 28 SPAC IPOs for deal credit of roughly $8.28 billion. Its deal count was just behind Cantor Fitzgerald & Co. and EF Hutton Partners LLC, which each had 31 deals.

Goldman Sachs racked up $5.92 billion of deal credit on 19 offerings, while BofA had $4.81 billion of deal credit on 20 offerings.

The pullback from the SPAC market coincided with the SEC proposing new rules in March that would require additional disclosures about SPAC sponsors, conflicts of interest, sources of dilution, and acquisitions between SPACs and private operating companies.

Market participants have said SPAC offerings are likely to cool, partly because of the SEC clampdown. Deal volume tumbled through the early part of 2022; deal credit from the start of the year through May 10 was down by $184.56 billion from the prior-year period, according to data compiled by Market Intelligence.

'A niche-ier product'

Regulatory changes are "going to slow down a lot of the SPAC activity," Evercore Inc. Chairman and CEO John Weinberg said on a first-quarter earnings call. "There's going to be a level of scrutiny and diligence that is required from some of the new [regulations] that is actually going to change how easy it is to do the SPACs."

Moelis & Co. co-President Navid Mahmoodzadegan said in a June 13 conference appearance that the IPO market is dormant, which led SPAC deals to slow down.

"A lot of that hot money has evaporated from the system. A lot of that retail money has evaporated from the system," Mahmoodzadegan said, adding that, with the proposed SEC rules, "SPACs will go back to being a niche-ier product."

Jeffrey Solomon, chairman and CEO at Cowen Inc., said in an earnings call that tighter rules may benefit the SPAC market in the long run by bolstering standards.

"I'm actually glad to see that the SEC is trying to put some rails around the kind of activity that should be permissible," he said. "There [were] definitely some people in the SPAC market doing things that we were concerned would cause there to be a negative taint."

For SPACs still in the market looking for a deal, "I think there's a combination of some of them won't get deals done, they'll liquidate," Mahmoodzadegan said. "Some will scratch together and claw together transactions. It will be interesting to see what those transactions looks like. They'll obviously have to be done at valuations that are super attractive to investors because ... the IPO market's essentially shut and people aren't putting money into these kinds of companies unless they're super attractive valuations."