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PE Exits

Apollo SPAC liquidates in continued exit freeze

Apollo Global Management’s decision to liquidate and dissolve a SPAC is the latest byproduct of a frozen exit environment and declining valuations.

Apollo Global Management’s decision to liquidate and dissolve a SPAC intended to acquire growth-oriented, pre-IPO companies is the latest byproduct of a frozen exit environment and declining valuations.

The long road to liquidation, which was announced Friday, began when Apollo Strategic Growth Capital II went public in February 2021, fueled by high private company valuations, a frenzied deal market and a proliferation of SPAC vehicles. In 2021, a total of 788 SPACs raised funds via IPO, more than double the previous year’s count of 305, according to PitchBook data.

Later in 2021, Apollo attempted to take public another SPAC vehicle, Apollo Strategic Growth Capital III, but by the end of that year, the firm cut the size of its IPO by $50 million. That listing never materialized.

Momentum slows

From Q1 2021 to Q1 2022, total SPAC IPO deal count dropped from 321 to 96, according to PitchBook data. Q3 2022 saw only 35 IPOs via SPAC at a $981.5 million aggregate post-valuation.

A SPAC typically has a two-year time frame to enter into a business combination before it liquidates. In December 2022, months before its initial deadline, Apollo Strategic Growth Capital II entered into a nonbinding letter of intent to acquire a company to eventually take public.

The signing of this letter of intent extended the Apollo-backed SPAC’s deadline to May. Then, one week before the cutoff, the company extended the deadline again, this time to February 2024.

Still, the SPAC didn’t enter into any definitive agreements and by November, the firm accelerated the liquidation process. The company will cease trading on the NYSE by Nov. 28, according to Apollo’s announcement.

The firm, which did not state a reason for the dissolution beyond the terms of its memorandum, declined to comment.

It’s safe to stay private

Apollo is not alone. By July, 32% of SPACs issued between 2020-22 had liquidated, according to Valuation Research Corporation, and in September, Bloomberg reported a full month without a blank-check debut.

Peers of Apollo have also liquidated blank-check vehicles. In October, Ares Acquisition Corporation, an Ares Management-backed SPAC, announced plans to dissolve after it called off a $1.8 billion merger with X-energy, a nuclear reactor company, and TPG and KKR both liquidated SPACs in late 2022.

“You’d like to think that Apollo had sufficient deal flow that they could’ve found an appropriate target to take public, but for whatever reason, they’re electing to dissolve,” said Douglas Ellenoff, partner at Ellenoff Grossman & Schole, which advised on 20 SPAC listings in 2022, according to SPAC Research.

Company shareholders are reluctant to sell at lowered valuations, and the PE exit environment followed a similar trajectory to the SPAC boom and bust. PitchBook’s Q3 2023 US PE Breakdown shows how total US PE exit value fell by $195.4 billion, or 72.5%, from its peak in Q2 2021 to Q2 2023.

Valuation declines hit late-stage VC-backed companies the hardest. In Q3 2023, median late-stage deal size decreased 8% from the prior quarter, crystallizing 2023 as a six-year low, according to PitchBook’s latest US VC Valuations Report.

At the same time, the IPO market shut down last year, falling from 416 IPOs in 2021 to only 90, according to EY. While some companies hit the public market in 2023, including Cava and Arm, the exit environment remains constrained.

“You’re having a contraction of valuation after 2021,” Ellenoff said. “There is evidence of excess from that period of time, and one of which is the dissolution of the SPAC market.”

Implications for IPO market

Joel Rubinstein, a partner at White & Case, where he advises clients on SPAC IPOs, said liquidations don’t spell optimism for the eventual reopening of the IPO market.

“Generally, there’s just not a lot of investor appetite for newly public companies,” said Rubinstein. “That’s reflected in the traditional IPO market and has the same implications for SPACs.”

Since its foray onto the NYSE, Apollo Strategic Growth Capital II has generated fairly neutral returns for stock holders.

Ellenoff emphasized that shareholders remain relatively unharmed in these liquidation processes and typically get their money back from failed endeavors.

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Featured image by Maciejwiner/Getty Images

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