Another month and another failed SPAC in the smart buildings industry, this time involving German smart thermostat provider, tado. Each special purpose acquisition company (SPAC) deal offers a different set of reasons for failure, but on the surface, the tado deal with GFJ ESG (the SPAC) appeared to have all the ingredients for success. Tado has a strong customer base in the smart thermostat market, which promises strong and reliable long-term growth trends.

“The entire team at tado is extremely proud to partner up with GFJ,” said Toon Bouten, CEO of tado, in a January 2022 statement. “We share the same convictions and the same passion for environmental technologies. And we are determined to jointly help our customers save money and reduce their ecological footprint. Together, we are in a great position to create a more sustainable energy future.”

Tado has previously received investment from major players, such as Amazon, and the SPAC was led by an experienced team, including Gisbert Rühl (former CEO of the Klöckner industrial group), industry stalwart Josef Brunner (founder of Relayr), and renowned financier Florian Fritsch. Together they created the shell company for this purpose and spent months developing the €450 million reverse-merger with tado, before it all fell apart and the two entities parted ways.

Allegedly, the company’s shareholders could not agree on a valuation for the merger, but just as the tado deal started to look unlikely, GFJ ESG revealed a new opportunity. The SPAC is now planning a €100 million reverse merger with British building management startup, Learnd, a company that is majority owned by two of the SPACs founders, Brunner and Fritsch. The plot thickened as Fritsch reportedly left the SPAC and sold all his shares of Learnd to Brunner earlier this month, stating a "potential conflict of interest,” which would require a "fairness opinion" from a law firm.

"It's a deal that smells stinky - even an expert opinion from a law firm doesn't change the conflict of interest. It's now up to the investors whether they like the company despite this constellation - or whether they want their money back,” says Christian W. Röhl, financial podcaster and book author. “The SPAC financiers have the option of reclaiming their investment if they don't like the acquired company. This case shows the pressure the SPAC makers would be under to find deals at all costs.”

Even if the Learnd deal goes through and has success, this deal has done little for the reputation of SPACs. After the very public struggles of Gorilla Technology, View, Latch, Brivo, and others, “SPAC” is fast becoming a cursed word in the smart buildings industry. Theoretically, however, there is nothing wrong with the SPAC route to IPO, for a company that is ready and able to go public, but repeated problems reveal a pattern that most likely has a root cause. Of course, not all SPACs fail, however.

STEM is often touted as the SPAC success story for smart buildings, with moderate value growth, but there are more success stories from other industries. In total, over 900 blank-check companies have gone public since Jan. 1, 2020, with a combined value of over $250 billion, according to data from Dealogic. These shell companies typically have two years to find a business combination or risk having to give that money back. SPACs usually list their stocks at $10 a share and rising above that remains the benchmark for success, and there have been notable successes.

Established companies, for example, like Hostess Brands Inc., the maker of Twinkies and Ding Dongs, has roughly doubled since it went public via SPAC back in 2016. Pretzel and chipmaker Utz Brands Inc., which went public in August 2020, turned in a 16% annualized return since the deal was announced. These were already market leaders with household-name products that were already set to thrive as public companies but chose an alternative IPO route.

Mid-size companies have also seen some success. 14-year-old electric vehicle maker Lucid Motors went public in July through a SPAC and saw its shares reaching $55 before settling at $40 at the end of 2021, and currently sits around $14. Founded in 2006, lithium-ion battery maker, Enovix closed its second quarter at $26 per share and currently sits at around $18.50. While Electric vehicle charging infrastructure provider, ChargePoint, settled its first year at around $19, and currently sits at $13.50. These are all 10 to 20-year-old businesses, with strong business models, in stable and growing markets.

“It looks different than it did in 2020 and early 2021, when flying taxis and spaceships were getting financed. Now, the market is more sophisticated and discerning and the Private Investment in Public Equity (PIPE) market is tougher, significantly impacting which de-SPAC-ed deals are successful,” says Danielle Fornabaio of Gladstone Place Partners. “Some of the recent successes are companies with established business plans and long-term committed investors. These de-SPAC-ed companies are tied to post-pandemic tailwinds, ESG fervor, conscious-driven brands and resilient consumer trends.”

The smart buildings market might not be ready for SPAC success, whether we say it is because of the type of investors and business plans, or just the growth rate and maturity of the market, but there seems to be a pattern forming for smart building SPACs. The SPAC route to IPO may also be attracting the smart building industry’s most ambitious and impatient companies, many of those companies might not be ready for the challenges of being publicly listed. Whatever the reason for the poor record of smart building SPACs, the few success stories and the lure of a shortcut to that success could lead to more companies into these reverse-mergers in the coming years.