According to CNN, the red-hot market has “stopped” for special-purpose acquisitions or SPACs.
With the market for SPAC growing in the last six months, everyone seemed to be getting into the game, from Shaquille O’Neill to former House Speaker Paul Ryan leading his own SPAC. But shareholders’ lawsuits, massive price fluctuations, and warnings from the U.S. Securities and Exchange Commission have at least temporarily put a brake on the speculative market.
So what are the privately run technology companies that need to be considered by the public about the SPAC process and market? First, the opposite of specs: these are far more effective ways for a private company to reach out to the public than with traditional IPOs. By joining a SPAC instead of launching an IPO, a private company working with underwriters can avoid the stubbornness of creating roadshows hosting, prospectus and other complications related to the public filing process.
Furthermore, it could potentially be a quick track with a seasoned partner in an IPO who has experience navigating the process. There are also large potential financial incentives. For example, private sector stockholders often go over their stocks and provide significant cash liquidity.
Specs offer more certainty about the pricing of a private company than a traditional IPO, and some experts believe that a SPAC can add up to 20% to a company’s selling value compared to a typical private equity transaction. And, especially when the SPAC market was hot, multiple SPACs could create a bidding war to increase the price for the transaction and create more favorable conditions than the conventional capital markets.
After all, partnering with an experienced management team and impressive industry interiors can help a private company accelerate its financial growth and create long-term value. All of these benefits led to a dramatic increase in SPAC transactions in late 2020 and early 2021. However, the market has cooled considerably in April due to high-profile issues in the market and indicates that the SEC will monitor the entities more closely, the future.