- Bill Ackman's $4 billion blank-check company has just 6 weeks to identify a target to merge with.
- A deal for Pershing Square Tontine Holdings to acquire Universal Music collapsed last year.
- SPACs boomed in the first half of 2021, but the market has struggled since.
Billionaire investor Bill Ackman is running out of time to find a target for his $4 billion special purpose acquisition company.
Pershing Square Tontine Holdings needs to identify a company to acquire within the next six weeks, or Ackman will have to return all its cash to his investors.
A SPAC raises money by listing on the stock market and then aims to merge with a private company within a set timeframe. Ackman's blank-check vehicle went public on July 22, 2020. Sponsors have to dissolve their SPAC within two years of listing if they are unable to identify an acquisition target.
Ackman scrapped his plan to buy a stake in Universal Music last year, citing opposition to the deal from the Securities and Exchange Commission. PSTH is yet to identify a replacement target and its stock has plummeted to 5.7% below its initial $21.10 listing price since that deal was nixed.
Ackman has subsequently urged the SEC to extend its deadline, but it's looking increasingly likely that he'll have to return $4 billion worth of cash to PSTH's initial investors.
"Unless Ackman comes up with some magic in an extremely volatile and uncertain market, he will be returning the $4 billion," Jim Osman, founder of the Edge Consulting Group, told Insider.
SPACs raised $96 billion in the first quarter of 2021 alone, according to the Harvard Business Review, but the industry has struggled since that initial boom. Morgan Creek's Exos SPAC Originated ETF, which tracks these vehicles, has plummeted 47.8% over the past year.
One issue is that SPACs tend to merge with high-growth, low cash-flow companies that want to avoid the traditional IPO process. These sorts of stocks have struggled in 2022 due to rising interest rates, with the tech-heavy Nasdaq 100 entering bear market territory.
"With monetary policies tightening, speculative bubbles are bursting one after the other," Charles-Henry Monchau, chief investment officer at Syz Bank, said. "SPACs are no exception."
"Bill and Pershing face an uphill battle," Edge Consulting's Osman added. "Selling SPACs to investors is now virtually impossible."
Read more: Bill Ackman owns 7 stocks after his $1.1 billion bet on Netflix. Here's why he bought each of them.
