The re-opening of the economy has begun, and the markets seem to have bottomed out and recovered. The recovery may be slow, but it has been enough to unfreeze the IPO market for SPACs (Special Purpose Acquisition Companies). SPACs, also known as blank-check companies, have seen a recent resurgence as the market deals with high levels of liquidity, depressed valuations and a strong appetite for growth companies. SPACs raise money in an IPO and place it in a trust while the sponsor looks for a target to acquire. Once the companies complete the merger, the target company becomes a listed stock.
Of the 496 total U.S. IPOs in 2020, 246 of them were SPACs…that’s 49.7%, and SPACs are being backed by investment banks, hedge funds, PE firms and venture capital firms. Will this trend continue as the economy rebounds from the pandemic and companies seek alternative routes to the public market? In a time of depressed valuations, what are the challenges that surround these transactions? How are these transactions different from typical M&A transactions, and what nuances to investors and companies need to be aware of?
Mitch Nussbaum is the vice chair of Loeb & Loeb and serves as co-chair of the firm’s Capital Markets and Corporate Department. His practice focuses on representing emerging growth companies and investment banks in initial public offerings, follow-on public offerings, shelf takedowns, registered direct placements, PIPEs and other private placements (144A, Reg D, Reg A, Reg S, etc.).
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