Seeking Alpha • Sep 23
IPOF: The SPAC Bubble Is Deflating Summary
Social Capital Hedosophia Holdings Corp. VI 'IPOF' is a special purpose acquisition company led by venture capitalist Chamath Palihapitiya.
On Tuesday, it was announced the vehicle would wind down due to the lack of acquisition targets.
Investors who bought into the name in late 2020/early 2021 are now facing the crystallization of substantial losses.
Higher rates are taking the wind out of all classes of speculative assets that thrived on investors' beliefs rather than actual free cash flows.
There is more weakness and pain to come, and the market needs to see these investments as pariahs before we can call a bottom.
Thesis
Social Capital Hedosophia Holdings Corp. VI (IPOF) is a special purpose acquisition company led by venture capitalist Chamath Palihapitiya. On Tuesday, it was announced the vehicle would wind down due to the lack of acquisition targets. The announcement is important due to the size of the fund (approximately $1.5 billion) and the fact that Chamath is known in the venture capital circles as the "SPAC King". The vehicle was incorporated mid-2020 and targeted technology companies:
We are a blank check company incorporated on July 10, 2020, as a Cayman Islands exempted company, for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. While we may pursue an initial Business Combination target in any industry or geographic location, we intend to focus our search for a target business operating in the technology industries.
Source: Annual Report
The reasoning behind the closure (at least the stated one), was the inability to find suitable deals to undertake. On the positive side, investors are not losing money, the initial $10/share being planned to be returned after clipping US government yields since inception:
Upon the closing of the Initial Public Offering and the Private Placement, $1,150.0 million ($10.00 per Unit) of the net proceeds of the Initial Public Offering and certain of the proceeds of the Private Placement were placed in a trust account (the "Trust Account") located in the United States and invested in U.S. government securities
Source: Annual Report
Rates are continuously moving higher and all revisions are moving up:
Goldman analysts [...] were revising their forecast for rate hikes to 75 basis points (bps) in November, 50 bps in December, and 25 bps in February, for a peak funds rate of 4.5-4.75%, versus 4-4.25% previously
GS Rate Schedule (Goldman Sachs)
Higher rates are taking the wind out of all classes of speculative assets that thrived on investors' beliefs rather than actual free cash flows. This is an important macro aspect because until liquidity is drained from "belief assets" we will not have reached a bottom yet in the wider market. The excesses of the past need a complete re-set, and investors who bought securities they did not understand just because a neighbor told them they are the next best thing need to lose a substantial amount of capital to capitulate on the asset class. Announcement • May 29
Social Capital Hedosophia Holdings Corp. VI Receives Notice from the NYSE Regarding Delayed Filing of Quarterly Report On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the U.S. Securities and Exchange Commission (the “SEC”) together issued a statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (‘SPACs’)” (the “SEC Staff Statement”). As previously disclosed, given the scope of the process for determining the appropriate accounting treatment of its outstanding warrants in accordance with the SEC Staff Statement and Accounting Standards Codification (“ASC”) 815-40, Derivatives and Hedging: Contracts in an Entities Own Equity, Social Capital Hedosophia Holdings Corp. VI was unable to complete and file its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2021 (the “Form 10-Q”) by the required due date without unreasonable effort and expense. On May 25, 2021, the Company received a notice (the “Notice”) from the New York Stock Exchange (the “Exchange”) indicating that, as a result of not having timely filed the Form 10-Q with the SEC, the Company is not in compliance with Section 802.01E of the NYSE Listed Company Manual (the “Listing Rule”). The Listing Rule requires listed companies to timely file all required periodic reports with the SEC. The Notice indicated that the Company can regain compliance with the Exchange’s listing standards at any time prior to November 24, 2021 by filing the Form 10-Q. If the Company fails to file the Form 10-Q by such date, the Exchange may grant, at its sole discretion, an extension for the Company to regain compliance, depending on the specific circumstances. The Notice also stated that the Exchange may nevertheless commence delisting proceedings at any time if it deems that the circumstances warrant. While the Company can provide no assurances as to timing, the Company plans to file the Form 10-Q as soon as practicably possible, and no later than November 24, 2021, and regaining compliance with the Listing Rule. 
