Friday, May 27 2022

The market for public premieres cooled in March. But this week, Forge Global bucked the trend. The startup completed its white merger on Tuesday, and its shares got off to a flying start, rising as much as 143%. The stock stabilized over the week for a more modest gain of 13%.

Forge operates a marketplace where investors and employees can trade pre-IPO shares of private startups. He is therefore well aware of the transformation that a start on the stock market can be.

“The IPO is a big event for any company, isn’t it?” says Jose Cobos, COO of Forge. First announced in September, the combination valued Forge at $2 billion. “It was an incredible celebration, it was a huge accomplishment. It’s a reason to thank everyone.

Nowadays, it was also a rare occurrence. Including Forge, only five companies entered into SPAC deals this month, according to data from SPAC Research. And only one company completed a U.S. IPO in March: Akanda, a medical cannabis company.

It was a sharp reversal from 2021. Then a roaring stock market attracted record numbers of new entrants. Now, global volatility has closed the IPO window. A total of 197 SPAC deals were completed last year, compared to just 26 so far this year. And companies executed a whopping 397 U.S. IPOs in 2021, per Renaissance Capital, with a meager 17 so far in 2022.

“The markets are very different today than they were in September,” says Cobos, “in terms of interest rates, obviously what’s happening in Ukraine. There’s just a lot of volatility.

The SPAC market in particular offers a story of boom and bust. These deals were relatively rare until 2019, when Virgin Galactic entered into a successful SPAC merger that helped spark a string of imitators. In mid-2020, SPACs were the hottest things in finance. Bankers, private equity firms, athletes and celebrities all backed their own blank check vehicles, driven by friendly deal terms that promised to enrich a SPAC sponsor, i.e. s they could find a company to merge with.

Eventually, this incitement to strike a deal at all costs began to backfire. Companies that had gone public through SPAC mergers have seen their shares begin to plunge – the IPOX SPAC index is down about 40% from last year’s highs. Repayment rates soared as public investors withdrew their money from proposed SPAC deals they had little faith in. Both of these factors have led to an increase in contract terminations, with more companies and sponsors choosing to call things off rather than face the wrath of the market.

“A lot of money was lost,” says Marc Cooper, CEO of investment bank Solomon Partners. “It was the market madness of some of the companies that went public on the SPAC market. Now there were some good ones, don’t get me wrong. And I’m a long term believer in the product. It’s just that it was like drinking two bottles of tequila instead of a few shots.

Cobos and his colleagues at Forge were well aware of all these trends. But he says they never considered withdrawing or postponing the deal.

Forge was eager to go public for several reasons. The first is that this move added $215 million to the company’s balance sheet. The second is that Forge hopes to increase brand awareness among potential partners and potential customers, helping the company better compete against competitors such as Carta and EquityZen. And the third is that Forge was conquered by the expertise of Motive Capital Corp., the SPAC with which it has just merged. Motive is led by Blythe Masters, a former JPMorgan Chase executive who helped found the credit default swap and most recently served as CEO of blockchain infrastructure firm Digital Asset Holdings.

It can be difficult to make a public premiere these days. But Forge is happy to be the exception that proves the rule.

“The formalization of our relationship with Motive still happened despite, you know, the difficult market environment that we found ourselves in,” says Cobos. “So I think we’re different from a lot of companies that unfortunately couldn’t do that.”


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