Business Trends | Finance
They typically have two years to find and merge with private companies or they must return money raised from investors. A SPAC consists of two basic transactions — the IPO of the SPAC itself and its subse- quent merger. The acquired company takes the SPAC’s place on the stock market. Year-to-date as of mid-September, 435
SPACs had gone through the IPO process, raising a total of $125.9 billion for an average public offering of $289.3 million, according to SPACInsider. By comparison, only 59 SPACs became public in 2019, underscoring the sharp rise in their numbers in a short period of time, the trade publication reported. The SPAC strategy is often quicker than a traditional IPO. Once a target company is found, a merger can be completed in months versus a year or more with a traditional IPO. Also, in a SPAC deal, the company going public can make business projections, which is not allowed in a traditional public offering. Up until March, “the market was really robust, with almost 100 SPAC deals landing
every month,” says George Geis, law professor and expert in corporate law and finance at the University of Virginia. “Now we’re down to nine or 10 a month.” Although SPACs have been around for years, the recent enthusiasm built on its own momentum, Geis says. “The flavor of the day — where people rushed in for chances to get quick gains on their investments — has fallen a little out of favor,” says Brent Allred, business professor at William & Mary’s Raymond A. Mason School of Business. “Tighter regulatory oversight has added
a level of complexity,” he adds, but it could provide greater shareholder protection and awareness. “SPACs are not necessarily the utopia mechanics for going public,” Allred says. “Without the scrutiny [of traditional IPOs], some SPAC deals turned out well, but others came back to bite the shareholders.” Despite the pullback this year, Pearson sees continued opportunities for SPAC deals. Success will be company-specific going
forward, he says. “It comes back to what wins in the long term and what creates value for shareholders.” There’s also considerable demand. A total of 452 SPACs, including some that completed public offerings in 2019 and 2020, are searching for new target companies — typically young startups with potential but unproven track records in hot sectors like tech or green energy. The firms tend to be smaller and potentially riskier than those going through a traditional IPO. Some, especially those with no revenue, typically would stay private longer, but with a SPAC, they can tap into public markets earlier to raise capital and fuel growth.
A mixed bag In Virginia, Tysons-based Cvent Inc.,
an event management company, said in July that it plans to merge with San Francisco-based SPAC Dragoneer Growth Opportunities Corp., which trades on Nasdaq. The deal — expected to close in the
“The SPAC market is a little saturated, but I wouldn’t write it off,” says Derek Horstmeyer, professor of finance at George Mason University’s School of Business. “While the crazy hype we saw nine months ago is down, a lot of money is sitting in SPACs, waiting to acquire companies.”
Photo by Stephen Gosling
www.VirginiaBusiness.com
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