Continuing on the topic of SPACs.
Alternative to Traditional IPOs
At IPO banks work for the ecosystem, not the firm.
Banks win regardless of the direction of the stock (incl. greenshoe option)
On the other hand, banks are gatekeepers protecting new shareholders from potential misrepresentations by the firm.
Avoiding banks is in the old shareholders’/investors’ interests, but this reward comes with a liquidity risk.
Is the Remedy (SPAC) Better than the Illness (Banks)?
Public company (SPAC) merges with a private firm and makes the firm public.
If SPAC investors are not happy – they can get their money back.
SPACs give certainty about the share price immediately (compared to IPO’s pricing and volumes that are determined very close to the IPO event).
Speed to market with SPACs is way higher than IPO (Vegas Wedding Chapel for liquidity events © Byrne Hobart).
Brand halo – a charismatic sponsor may pump up the valuation.
SPACs Aren’t Cheap, Either
SPACs will buy a firm at a discount [compared to the firm’s idea of a fair price].
SPAC organizer’s take is 20% (compare to Banks’ 3-5%) promotion fee (adding insult to the injury).
Maybe this fee when SPACs become mainstream will get lower.
IPO costs are disguised rather than saved.
Stockholm Syndrome at Play
After the agreement SPACs start working FOR and WITH the company, aligned interests.
No lockups, no greenshoe, total price transparency.
Maybe after the huge one-off charge the combined firm’s share price will be more fair, i.e. the firm+SPAC reap the benefit of the “pop”, not new investors.
But how much would you pay to be taken public by someone working for you? [hint: SPACs may charge way too much for the privilege]