SPACs – Special Purpose Acquisition Companies – have risen to prominence over the last few years. Another way to look at a SPAC IPO might be to call it a SPAC “IPM” – for Initial Public Merger. The transaction structure provides for a publicly-listed shell corporation to acquire/merge with an operating business, which becomes the publicly-traded company following completion of the transaction process. As of June 30, 2020, there were more than 100 publicly-listed SPACs, holding more than $30 billion in cash, in the process of identifying potential operating company merger partners.
Ten years ago SPACs were often associated with acquiring businesses that weren’t ready for life as a public company. More recently, however, SPACs are being sponsored by highly credible executives and M&A experts, with substantial institutional or private equity sponsorship. SPAC IPOs have accelerated in sectors such as technology, where VCs want better liquidity solutions without the pricing inefficiencies of an IPO. The structures are also evolving and improving, attracting substantial backing from institutional investors who like the transparency, access, and investment options of a SPAC transaction versus a traditional IPO.