What’s the Difference Between a SPAC and an IPO?

A lot of people are familiar with an Initial Public Offering (IPO) because it is an important part of running a business, especially a large-scale organization. 


By 2020, Special Purpose Acquisition Companies (SPACs) are also experiencing a significant boost in their popularity because business owners want an alternative to going public. 


An SPAC is capable of raising cash in an IPO and using the cash to acquire a private company. 


Generally, a well-experienced management team is responsible for leading an SPAC with the support of a sponsor. Most of these management teams and sponsors come from the private sector and often work on multiple SPACs within a short period.  


Audit firms in Singapore offer professional pre-IPO advisory services to help organizations easily choose between an SPAC or a traditional IPO.   

SPAC and IPO are the two primary ways a company can go public. Before going public, start-up businesses that wish to be listed on a stock market often need money from outside investors. 


An IPO is a conventional method of doing this. However, this often demands a lot of time and money. Several businesses have opted to work with SPACs to avoid this issue.


A major similarity between IPOs and SPAC involves going through the official agencies to raise funds and gaining permission to raise funds from the public. However, analysing the critical differences between IPO and SPAC is important. 


A huge difference between an SPAC and a traditional IPO is the length of the process, valuation of funds raised, and offering of various documents. 


Let’s explore the differences between SPACs and IPOs in detail.


1. Duration

SPACs may be established and become publicly traded in a couple of months. However, it may take an operational business from nine months to several years to become publicly traded when all the necessary preparations are taken into account. 


SPACs are not operational corporations. Therefore, they have less information to present in their registration statement, which accounts for the shorter schedule. 


A private company that merges with an SPAC that is already listed on the stock exchange must submit a proxy statement and get shareholder approval, although all of these procedures may be completed more quickly than if the private company had opted to go public through a conventional IPO.

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2. Purchasing Window

SPACs typically have to complete an acquisition within 18 to 24 months. If they are not able to fulfil the commitment in this period, they might have to liquidate and return the funds raised in the IPO to investors. 

3. Volatility

The target company will become less vulnerable to price volatility brought on by unpredictable market circumstances through SPACs and will be aware of the price at which it will be bought by the SPAC. 


Before publicly announcing their acquisition, the SPAC and the target company may secretly agree on a transaction and determine a price, lowering the possibility that the market or certain parties will have an impact on the terms or the transaction price. 


4. Inspection

A typical IPO exposes a company to intense scrutiny in the months before the IPO and might lead to ambiguity over valuation up to the IPO price. SPACs, on the other hand, aren’t operational businesses and aren’t often the subject of intense discussion or analysis. 


However, with more emphasis being placed on SPACs and media coverage being given to them, certain SPACs, notably those having celebrity names associated with them, have come under scrutiny on par with regular IPOs. 


If you rely on the professional pre-IPO advisory services of an audit firm in Singapore, you will be in a good position to make a smart choice between SPAC and a traditional IPO.  


5. Reward

Sponsors of SPACs obtain what is referred to as the “promote,” or 20% of the merged company’s stock. 


This essentially dilutes the ownership of the IPO held by the public shareholders while compensating the sponsors for the risk they assumed in putting up their at-risk capital to construct and run the SPAC between the time of its IPO and the De-SPAC.

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In Closing

Merging with an SPAC may be simpler and quicker for a private business that wants to go public than going through the standard IPO procedure. 


Unfortunately, as SPACs grow in popularity, some might make expensive and well-known errors that would probably have an impact on the whole overheated SPAC industry. 


SPACs confront several regulatory, legal, and commercial challenges as they go through their IPO and the ensuing smooth process, including getting the proper level and kind of insurance at each step of their life cycle. 


However, with careful planning and the knowledge of qualified advisors like an audit firm in Singapore, you will be able to make your organization public without any major issues.