Last week, we wrote about how IPOs are generally undervalued. Here is a look at how Special Purpose Acquisition Companies (SPAC) are influencing traditional IPOs.
What is SPAC, and how does it work?
Special Purpose Acquisition Companies (SPAC), or blank-check companies, are created solely for acquisition. They are publicly-listed and raise funds through an IPO to acquire new companies. The businesses bought by a SPAC get the benefits of avoiding the complex process of issuing an IPO, navigating through the volatility of the market, and also the probable underpricing of IPOs. Nikola CFO Kim Brady said: "If we had pursued the IPO path, we would not be a public company at this point."
- The SPAC IPO size and count have constantly been increasing since 2016. In 2019, SPAC IPOs raised $13.6b, up 26% from $10.7b in 2018.
- In 2020 so far, SPAC IPOs have already raised $14b, more than they raised in all of 2019, with 31% fewer deals.
- On average, SPAC IPOs raised $231m in 2019 and $312m in 2020, a 36% increase.
- In March, April, and May 2020, the count of SPAC IPOs and the deal value were equal to or more than traditional IPOs.
- Popular SPAC acquisitions: Nikola Motors was bought by VectoIQ; MultiPlan Inc. is being acquired by Churchill Capital Corp III; Fisker is planning to go public with the Spartan Energy. Last year, Virgin Galactic was acquired by Social Capital Hedoscopia.
- Pershing Square Tontine Holdings, led by Bill Ackman, is planning to go public this week and potentially raise $4b i.e., 200 million shares at $20 each. Ackman said this SPAC is created to acquire a mature unicorn.