British online used car retailer Cazoo Group Ltd (NYSE:CZOO) is on the verge of filing for administration less than three years after listing on the New York Stock Exchange, Sky News reported last week.
Valued at nearly $8 billion in August 2021, Cazoo’s shares have since collapsed over 99% and are now virtually worthless.
As was all the rage at the time, Cazoo listed on the NYSE via a reverse merger with a special purpose acquisition company (SPAC).
SPACs allow companies to access the public markets without going through the rigorous and expensive listing process.
They soared in popularity during the pandemic-era stock market rally, but many SPACs have failed to hold onto their lofty valuations in the years since.
According to Bloomberg data, at least 21 firms that went public through a SPAC went bankrupt in 2023, wiping out more than $46 billion of total equity value, with WeWork’s disastrous flotations contributing $9.4 billion.
An unfortunate example
John Bringardner of restructuring analytics firm Debtwire, said: “The extreme fall in the valuation of British used car company Cazoo is yet another unfortunate example of a company that took advantage of the SPAC frenzy in 2020 - 2021, managing to secure financing and go public, only to end up restructuring.
“Recent Debtwire data found that default rates among de-SPAC companies are double that of other speculative-grade corporations which speaks to the shaky financial foundations of former tech darlings in their rush to public market exits.”
Bringardner cited similarities with US used car rival Carvana, which managed to secure a $5.5 billion rescue package to stave off collapse in 2023.
“Cazoo now desperately needs to pull off something similar, as the pressure to raise additional capital before the beginning of the second half of 2024 in order to satisfy its liquidity needs, is immense,” he said.
“Still, much like Carvana, even if it can successfully restructure its debt, the fix may still prove to be more of a band-aid than a long-term solution.”
Earlier this month, Cazoo revealed that it failed to secure emergency funding and warned of its intention to file for administration.
If Sky’s reports are accurate, those warnings have become a reality.