Executives from RXR, 1-800-Flowers unwind their SPACs

Special purpose acquisition companies — SPACs — led by two high-profile Long Island executives are returning hundreds of millions of dollars to shareholders, joining a wave of such early redemptions nationwide.

The SPACs, led by James "Jim" McCann, chairman of 1-800-Flowers.com in Carle Place, and Scott Rechler, chief executive of RXR Realty in Uniondale, are exchanging cash for shares after failing to cut deals to acquire operating companies amid a crash in valuations.

SPACs, also known as "blank-check companies," raise money through an initial public offering on a stock exchange with the intent to identify and acquire an operating company. If an operating company cannot be found, the funds are returned to shareholders on a termination date 24 months after the IPO.

On Thursday, shareholders of Rechler's SPAC, RXR Acquisition Corp., which raised $300 million in March 2021, voted 36.9 million to zero to redeem their shares in advance of the termination date, according to government documents. Shareholders of McCann's Clarim Acquisition Corp., which had raised $287.5 million in January 2021, voted overwhelmingly — though not unanimously — in favor of redemption earlier in December.

McCann said that his team spent "an exhausting two years" searching for an acquisition target and negotiating with companies that calculated their valuation to be far higher than the number assessed by Clarim.

"Private companies that we engaged with had a disconnect with their valuation," he said.

Valuation issues also were at the heart of the decision by RXR Acquisition Corp., a spokesman said.

"While we had several opportunities to acquire various startups with strong business models and momentum, we did not believe that these valuations were sustainable over the long term," he said in a statement.

That view has been "proven out" by the negative investment performance among publicly traded companies that were formed after SPAC mergers, the RXR spokesman said.

More than 30 SPACs that raised about $18 billion are planning to return capital to shareholders in the next few weeks, according to Bloomberg News.

That comes amid a sharp decline in the market for SPAC initial public offerings.

In 2022, 83 SPAC IPOs raised $13.2 billion, according to data from SPAC Analytics. That compares to a record 613 that raised $162.5 billion in 2021.

Mark Davis, tri-state accounting and reporting advisory leader for private equity and emerging growth companies at Deloitte & Touche LLP, , said that about 100 SPAC mergers will be completed in 2022, roughly half the number in 2021.

An additional incentive to return funds to shareholders is a 1% excise levy that could apply to stock repurchases and buybacks beginning in 2023 under the Biden administration's Inflation Reduction Act.

Davis said the tax could provide some incentive to complete a redemption before the start of 2023.

McCann said that the SPAC effort expended "two years of work by good people," forcing Clarim to "take our lumps" and "dust ourselves off."

Still, he continues to believe in the investment vehicle whose reputation became sullied among some merger targets that could choose to raise additional private capital or pursue a traditional IPO.

"All of a sudden SPAC became a dirty word," he said. "SPACs were perceived as a negative … It's a good idea. I hope it comes back."

By Ken Schachter

kenneth.schachter@newsday.comkschach

Ken Schachter covers corporate news, including technology and aerospace, and other business topics for Newsday. He has also worked at The Miami Herald and The Jerusalem Post.