You have thought about it for a long time. Should we “go public”. You have discussed it with your Board and your Leadership Team. The benefits of being public; access to capital, liquidity for investors, being able to attract talent (and reward existing talent) with stock options and being able to use shares as currency for acquisitions are all very compelling. Especially if you’re a fast growing company, looking to expand quickly to seize opportunities.
A traditional IPO process is time consuming and expensive. Lawyers, investment bankers and accountants are required, and sometimes outside consultants are hired. A year or more is required to prepare for an IPO. The distraction takes away time and focus from your Leadership Team for that period. Plus there is uncertainty as to whether there will be investor appetite or interest in your IPO when it is finally ready making proper timing essential.
SPACs provide the opportunity for your private company to go public in a manner different than traditional IPOs. A SPAC can reduce uncertainty in the timing of a deal and can close in a fraction of the time of an IPO, sometimes in as little as 2 or 3 months.
In uncertain and volatile times (such as the COVID-19 pandemic) executing the traditional IPO process may subject your private company to unfavourable market conditions, resulting in lower pricing of an IPO and less capital raised. SPACs, however, have already raised the necessary capital and have access to additional capital (by way of PIPE offerings), and the SPAC process is less exposed to overall investor sentiment and market conditions.
So what exactly is a SPAC ?
SPACs, or “special purpose acquisition companies,” are formed by a team of investors (sponsors) with the intention of pursuing an acquisition within a specific industry or with a targeted financial profile. Due to the lack of specific target at IPO, SPACs are often referred to as “blank check companies” with SPAC IPO investors relying on the experience, expertise and operating history of the SPAC leadership to find and complete a transaction.
Sponsors first raise capital through the IPO process which is then placed in an interest-bearing trust account. The SPAC seeks to acquire an existing privately held company, through what is commonly referred to as a “business combination.” SPACs acquire the privately held company through a reverse merger, and the existing stockholders of the operating target company become the majority owners of the surviving entity.
Following announcement of the transaction, the two companies work together to finalize merger terms and address regulatory filing requirements. During this period, investors, and the market may support the proposed merger and value of the combined company at a premium to the SPAC $10 IPO price. As closing of the merger becomes more certain, the market will start to trade the SPAC based upon the post-merger value of the company, often in-excess of the $10 SPAC standalone value.
The end result is that the previously private company becomes a publicly traded company ( “De-SPAC transaction”).
Key advantages to a SPAC vs an IPO
• Speed : SPACs allow privately held companies to go public faster than via IPO
• Ease : SPACs make it easier to go public during periods of market instability and higher volatility.
• Alternative financing : SPACs are an additional way for companies to obtain late-stage growth capital, other than through private equity or venture capital financing
• Certainty : A company’s valuation and capital raise can be assured, compared to a traditional IPO, because the valuation is fixed through a privately negotiated merger transaction.
• Experience : SPAC sponsor teams include very accomplished and experienced professionals.
• Opportunity : SPACs allow companies that might not otherwise be marketable through a traditional IPO to go public, such as companies with unprofitable operations or a complicated business history.
• Innovative : In traditional IPOs, only historical financial statements can be disclosed under securities law rules. SPACs are able to market the business combination using forward-looking projections. Being able to set forth projections can be helpful for fast-growing but not yet profitable companies to tell their story to investors.
• Attractive : SPACs are more established and visible now, so investors are more receptive to SPAC offerings.Curious ? Want to learn more ? Contact me
E-mail wholesale@amitel.com
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