The wave of shell company-led healthcare acquisitions has ebbed as valuations have dropped and financing has dried up.

Special purpose acquisition companies experienced a meteoric rise in 2020, when more healthcare companies turned to these “blank check” companies as an alternative to executing their own initial public offerings. SPACs, which raise money through IPOs and use it to acquire other companies and take them public, were involved in 119 deals across all sectors in the third quarter of 2020 valued at a cumulative $40 billion, according to consulting firm RSM’s analysis of Bloomberg data.

So far this quarter, there have been 25 SPAC-led transactions have been valued at $4.1 billion, down from 437 deals worth an estimated $129.6 billion in the first quarter of 2021.

“The SPAC frenzy has really cooled, but it still brought public equity markets to healthcare,” said Matt Wolf, director and senior healthcare analyst with RSM. “We have seen the crest in SPAC activity so to speak, but it’s not going away. “

SPACs have attracted biotech, digital health and provider organizations that want to get to the public market quicker, while retaining a stake in their business and gaining access to liquidity. Traditional IPOs require companies to pitch sales presentations to a variety of potential investors, whereas SPACs -related transactions only require the convincing of one party.

The due diligence of the SPAC process is not as rigorous as a traditional IPO, some financial experts who question SPAC’s transparency say.

Companies can lose out on networking opportunities if they go the SPAC route. There’s also more vetting in the IPO process, said Cody Powers, a principal at ZS Associates.

“That vetting process from an equity-value standpoint means you are less likely to see a precipitous drop off in the offering. A company is worth however much a SPAC says it’s worth—there’s not as much of a data sample,” he said.

Senior primary care provider Cano Health, for instance, was valued at $4.4 billion when it went public last year via a SPAC. Its value in the public markets has been cut by more than half since, with shares trading at under $6 Friday, down from around $15 in June.

SOC Telemed, the acute telehealth company, will revert back to a private company once Patient Square Capital completes its purchase, which was announced last month. It went public by merging with a SPAC in 2020.

“Healthcare hasn’t been immune to the poor performance of many SPACs post-acquisition—the market has had some mixed reaction to some of those deals, with Cano being one,” Wolf said.

The SPAC market across all sectors has cooled, according to Jefferies data.

About three-quarters of the nearly 100 announced deals in 2021’s first quarter were valued at more than $1 billion. Only one of the announced nine SPAC deals in February carried that price tag, according to Jefferies.

Tech valuations have been shrinking over the few months and financing has tightened, analysts noted.

The number of SPAC cancellations has spiked in recent months, tallying more than 20 from the third quarter of last year through mid-February, Jefferies data show.

“That means these companies don’t have all the financing they need for clinical trials. It could have a bit of stigma effect,” Powers said. “It may have made more investors wary, which has been borne in deal volumes falling.”

The SPAC market is expected to rebound, but the number of deals and estimated value will be below 2020 peaks, analysts said.

Biote, which helps bring patients’ hormone levels back to normal levels, opted to take the company public through Haymaker Acquisition Corp. III after meeting with about 35 SPACs last year.

While the path to the public markets wasn’t quicker or easier via a SPAC, its leaders’ governance and operational expertise drove Biote’s decision to partner with Haymaker, said Marc Beer, chairman of the board at Biote.

“We didn’t accept the highest offer—we had a (letter of intent) of a couple million more. We wanted the best partner to build the company,” he said. “The leadership at Haymaker knows more about consumer scaling than those of us in the company.”

Beer was bullish on the SPAC market in healthcare, but only for the right company.

“If a company looks at a SPAC process as a lower bar to go to the public markets than through a traditional S-1, I think they will feel the headwinds and capital market pains after they get through the gauntlet of the SEC,” he said.

About 52 SPACs are looking to make a healthcare acquisition, according to RSM’s analysis of public offering filings.

Large private-equity backed provider platforms, including some in behavioral health, that could still be interested in a SPAC-sponsored public offering, Wolf said.

“Healthcare is a $4.1 trillion industry that consumes 20% of the US GDP and is extremely fragmented,” he said. “The pandemic has pulled forward incredible change and realignment in healthcare—investors want access to that. Once a private-equity backed platform gets to about $300 million to $500 million in revenue, there is someone in their ear about a SPAC or traditional IPO.”