The SPAC boom is starting to crack

The SPAC boom is beginning to show its first cracks, as several private equity-sponsored efforts have needed to downsize.

Driving the news: Cerberus yesterday shrunk the anticipated IPO for its telecom-focused SPAC from $400 million to $300 million.

• Riverstone Holdings' third SPAC yesterday raised $200 million in its IPO, after downsizing from $300 million.
• H.I.G. Capital filed to raise $450 million for a SPAC in late September, but on Thursday cut the proposed size to $325 million.
• MPM Capital raised $85 million for its debut SPAC Thursday, after originally filing to raise $100 million.

To be sure, plenty of private equity-sponsored SPACs have continued to hit their targets, and some have even upsized. But the offering glut has let investors become a bit more choosy — if only for allocation reasons, given the relatively low upfront risk — and private equity is increasingly finding itself on the short end.

• One banking source suggests that there are concerns that private equity prowess won't always translate to the public markets, particularly when put up against SPACs from hedge fund managers and former CEOs of listed companies.
• Another adds that private equity investors focus mostly on their "day jobs," whereas the SPACs are viewed as opportunistic second fiddles.
• Historical performance data on PE-backed SPACs vs. the pack is considered anachronistic, since the SPAC market has never before seen this sort of volume.

The bottom line: The SPAC space is evolving fast, and what's true today could be false tomorrow. But right now there's a flight toward sponsors that don't spend most of their time taking companies private.