Who wants a billion $ blank cheque?
With Renew Power acquisition by SPAC in news, we have been hearing a lot about SPAC companies – What are they? How does it work? Why are they used?
A SPAC is a “Special Purpose Acquisition Company” or more commonly known as “blank-cheque company”. It is an investment vehicle that is listed on a stock exchange. The SPAC has no business at all and raises funds from investors through an initial public offering. The money is used to acquire an existing company at a later date (within next 18 months or return the monies back to the investors – obviously, net of fees for raising funds). In short, SPAC is like an “IPO for nothing”!
How does a SPAC work?
SPAC Benefits:
Fin Fact: SPAC’s might sound to be a new concept, but it has been present since 2003!
Famous SPAC Sponsor – Billionaire Investor Chamath Palihapitiya’s SPAC –Social Capital Hedosophia Holdings.
Raised ~ USD 4.5 Billion through 6 SPAC IPO’s
Some SPAC acquisitions through his SPAC:
Richard Brnason’s Virgin Galactic in 2019
Open Door Technologies, real estate tech company in September 2020
Clover Health Investments, insure-tech in December 2020
So-Fi, Fintech company in Jan 2021
The below chart covers the number of SPAC IPO’s since 2009:
Source: Statista – SPAC IPO’s 2009 to 2021
Thanks to the pandemic (social distancing and lockdowns making difficult for road-shows!), Year 2020 saw the highest number of SPAC IPO’s. ~ USD 80 billion have been raised in 2020 with an average SPAC IPO size of USD 340 million.
Hot sectors for SPAC’s? It can be any sector but the buzz word right now is Tech and EV’s!
Fin Fact: Renew Power, an Indian company is in process to be acquired by Nasdaq listed SPAC Riverside Capital Management at a valuation of USD 4 bilion!
More Power to SPAC’s!
While SPAC’s boom seems to stay, there are many factors like investors getting cold feet, more regulatory actions, companies declining to merge with SPAC’s which can lead to end of this boom.
Until then, watch out this space for more articles!
Do write in comments section in case you would like to know about any such concept and I will try to cover in future articles :-)