Tuesday , 17 May 2022

SPACs vs. IPOs: What You Need To Know

Why would a company choose to go public through a SPAC rather than an IPO? That’s an insightful question and this article has the answers. Words: 320

The U.S. Securities and Exchange Commission define a SPAC as a Special Purpose Acquisition Company that raises money, goes public, and then uses the funds to buy a company and bring it public within two years. SPACs are referred to as “blank check companies” because investors give the SPAC sponsors money without knowing what they’re going to buy with it other than to pursue a takeover of a private business to bring public and when the SPAC managers purchase a company, your SPAC shares are converted into shares in the acquired company.

By Lorimer Wilson, Founder & Managing Editor of munKNEE.com and a frequent contributor to eResearch.com, usfinancepost.com, bitgrum.com and talkmarkets.com.

An Initial Public Offering (IPO) is the traditional way to go public so “Why would a company choose to go public through a SPAC rather than an IPO?” asks Ross Cameron of warriortrading.com who answers that by saying:

  • IPO candidates are mostly late-stage growth companies that have matured from their early venture capital funding rounds and have a clear path to profitability and continued sales growth.
  • More speculative, early-stage firm use SPACs to access the public markets in the absence of the big underwriters like Goldman who probably don’t want to put their name on such offerings.

When you IPO, you typically pay the underwriters in cash rather than equity and they probably don’t care too much about the stock price’s success after the IPO is complete. SPAC managers, on the other hand, receive most of their compensation through equity so they have an interest in the success of the company.

To find a list of publicly traded SPACs, Barchart.com has a list that, at the time of writing, has over 400 tickers. There are also sites like SPACalpha and SPACinsider that provide analyses and commentary on SPACs.

 

 

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