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The popular retail trading platform eToro has just announced that it terminated the agreement that was supposed to take the company public via a merger with a special purpose acquisition vehicle (SPAC) as the initial conditions of the deal were not fully satisfied.

In a joint statement released yesterday, the company clarified that, despite the best efforts of the two parties involved, they were unable to meet the deadline established for the completion of the deal, which was June 30, 2022.

“We would like to thank Betsy and the entire FinTech V team for their hard work, diligence and support throughout this process”, stated Yoni Assia, the Chief Executive Officer of eToro.

He added: “While this may not be the outcome that we hoped for when we started this process, eToro’s underlying business remains healthy, our balance sheet is strong and will continue to balance future growth with profitability”.

Meanwhile, the CEO of the SPAC that was supposed to help eToro in listing its shares in the public markets, Betsy Cohen, said that even though they were “disappointed” by not being able to meet these conditions, the transaction was considered “impracticable due to circumstances outside of either party’s control”.

A Challenging Macro Backdrop Explains Why eToro Pulled the Plug

eToro initially announced its proposed merger with Fintech Acquisition Corp V in March last year in a deal that valued the firm at approximately $9.6 billion and that would inject the company with around $650 million in capital from investors that participated in a private placement.

Even though the company has cited that both parties were unable to meet the deadlines set forth in the initial agreement, eToro may have backed down from the deal due to the challenging conditions that equities are facing at the moment.

Also Read: Quick Guide to Invest in DWAC Stock in 2022

Back in March 2021 when the deal was announced, central banks were still injecting billions of dollars into the financial system via direct asset purchases to stabilize the markets during the pandemic.

These liquidity injections prompted investors to assume a risk-on attitude that favored high-flying tech stocks and innovative companies regardless of the state of their fundamentals.

Now, the backdrop has radically changed and equities within the tech sector have been pummeled by the market’s risk-off attitude as central bankers are now considering multiple actions to restrict the money supply in their respective economies and reduce their large balance sheets.

The SPAC Market is in Bad Shape and Prospects Are Not Promising

spak etf ytd performance
Defiance Next Gen SPAC Derived ETF (SPAK) YTD Performance – Source: Koyfin

The SPAC frenzy that started during the pandemic has encountered an apparent bitter end as most of the companies that went public by using these vehicles have seen their share price decline significantly.

This downturn is reflected by the performance of Defiance Next Gen SPAC Derived ETF (SPAK), which has experienced a 37.1% drop so far this year as macroeconomic conditions at a global scale have deteriorated due to rising inflationary pressures, higher commodity prices, and interest rate hikes.

Also Read: Is eToro a Safe Trading Platform?

Among the top 10 holdings of the SPAK ETF, we find Lucid Group, Grab Holdings, and Sofi Technologies – all companies that went public through these vehicles in the past one or two years.

According to data compiled by White & Case the SPAC market has dried up in 2022 due to this shift in macroeconomic conditions. In 2020 and 2021, a total of over 300 SPAC deals were completed. In 2022, that number has descended to just 16.

Boardroom Alpha, a company that analyzes the SPAC market regularly, recently commented on their April 2022 report: “For the over 600 SPACs still searching for targets, the scramble continues. Extensions and more extensions are the norm.  And, with not nearly enough deals coming to clear out the backlog, more SPACs are pulling the plug on offerings.

“We expect some SPACs to start liquidating in the coming months, making warrant-based arbitrage more complicated”, the report concludes.

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