Why Many Companies Are Embracing SPAC
SPAC or special purpose acquisition companies have been around for a considerable period, but recently, they have taken off in the United States. SPAC research has shown that these forms of companies are gaining much attention in the media and corporate boardroom. Technically, a SPAC is a publicly-traded corporation with a life span of two years, and it is formed with the sole purpose of influencing a merger.
Who Benefits from SPAC
You are probably focusing on spac research because you want to learn whether or not you stand a chance to benefit from it. While a SPAC formation seems to be gaining a lot of popularity worldwide, the truth is that there is confusion about the advantages and disadvantages associated with it. Nonetheless, the speed of SPAC is incredible. While the typical IPO process can take about three years from start to finish, SPAC only takes about four months. Further, it comes with additional profit opportunities for big investors. In other words, the team or the sponsors responsible for forming a SPAC stands a big chance to make lots of millions in profits. Other benefits include low costs of marketing and access to operational expertise.
What are the Cons of Going Public with a SPAC?
In the world of investment, every venture comes with its risks. However, it is a good idea to note that those willing to take risks are the ones who leave a mark. SPAC comes with a few drawbacks, including the dilution of shareholding, the capital shortfall from potential redemption, compressed timeline for public company readiness, lack of comfort, and underwriting letter. These are some limitations that investors are likely to experience when venturing into a SPAC.
The Future Outlook of SPAC
The recent boom of the SPAC launches indicates the increasing demand for target companies. Statistics show that at the start of 2021, more than 200 SPACs were actively involved in searching for targets. It means that most of these companies will need to seal a merger considering their typical lifecycle of 18-24 months, after which they will have to consider liquidation.
In addition, two other critical factors drive spac research for the target. The two are industry preference and the SPAC’s capital. Approximately half of the SPACs possess $200 million to $400 million to spend for their business ventures. The ability of SPACs to obtain additional capital utilizing PIPR funding or debt implies that they can go for about three times those amounts. However, not every SPAC target a specific industry. Many are mostly focused on telecom and media, technology, life science, and healthcare.
The Bottom Line
Research has shown that going public through merging with a SPAC instead of launching an IPO is an essential venture that is worth trying. The SPACS courting targets will always make M&A appear even more enticing. However, there are merits and demerits to each option. The most reasonable step to take whenever you make your mind to get into these dealings is to carry out extensive spac research. With an accurate and wide range of knowledge on the same, you would make informed decisions. Additionally, you should find the proper SPAC suitor that meets your specific criterion.