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Pandemic driven craze or lasting change for private
companies?
One of the areas of the financial markets that has benefited
from the pandemic is special purpose acquisition companies (SPACs),
otherwise referred to blank cheque companies designed to create IPO
access for private companies without going through the traditional
IPO process. Historically, SPACS have been considered a relativity
niche pathway to the public markets, previously seen by some as a
mechanism to extract fees and give a route to public markets for
enterprises that would have otherwise struggled to list. However,
the strategy has received a facelift over recent quarters as the
stature of the investment firms and Sponsors involved has breathed
new life into the practice. This has also been aided by the
challenges to traditional IPOs caused by the Covid-19 pandemic,
resulting in a massive uptick in volume of Blank Cheque company
IPOs.
But with great popularity comes great competition and in 2020
~5X as many SPACs came to market versus that of 2019, and ~10X that
of averages over the last 20 years.
The Sponsors behind the renaissance of SPACs are typically
well-known executives or investment managers with impressive track
records. In general, Sponsors can raise capital faster than a
traditional IPO, and are rewarded with a significant stake in the
new company created from the reverse merger for a nominal
price.
Meanwhile, target companies can go public earlier and for
investors, SPACs provide a way to participate in a private
equity-like investments that is normally the reserve of the Ultra
High Net Worth's or professional institutional investors.
Despite extensive coverage and discussion, many misconceptions
are still widely reported, and details that add nuance to the
debate are commonly omitted from discussion. With so many SPACs in
the market and high levels of Cash in Trust it's hard to contest
that throughout 2021 they have a sustained opportunity to give
optionality to private companies to raise capital.
Our latest research report explores the following areas in
depth:
What is a SPAC and how is it different to an IPO or a Direct
Listing?
Role of the Sponsor and incentives of the parties
involved?
Posted 25 January 2021 by Leon Sinclair, Global Head, Private Equity & Debt Services, IHS Markit
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
