UNDERSTANDING SPACs A guide to navigating SPACs

SPACs have gained a lot of prominence recently. The concept is not new; it was first introduced in 1990 but has re-emerged due to the unique combination of social forces and uncertainty.
The pandemic brought the world to a standstill and led to significant volatility in the stock markets, forcing businesses and financial sponsors to cancel or postpone their plans. Only 406 companies completed IPOs (including SPAC IPOs) in 1H 2020; they raised USD80bn, down c.23% (down c.7% for SPAC IPOs).

Key Takeaways

1. The pandemic brought the world to a standstill due to uncertainty and the unprecedented disruption to stock markets.
2. Government stimulus packages and hope of an economic recovery have presented opportunities for investment.
3. Special-purpose acquisition companies (SPACs) have been around since the 1990s, but mostly as a last resort for smaller companies.
4. SPACs are an alternative way for companies to go public amid the crisis and are perceived to be a faster and simpler method than initial public offerings (IPOs) or direct listings.
5. SPAC deals saw a boom in 2020; around 335 SPACs have been listed YTD, already far more than the 248 SPAC deals in 2020.
6. The boom is driven mainly by market volatility, the likelihood of IPOs not succeeding and financial sponsors’ significant amounts of dry powder.
7. The regulatory framework for SPACs is still evolving; key concerns include insider trading, lack of disclosures and conflicts of interest.
8. SPACs are likely here to stay, considering the renewed interest of market participants.

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