Pros and Cons of Going Public Through SPAC
The decision to go public is itself a difficult one. Moreover, there are a number of options to consider when taking your company public.
In this regard, going public after merging with a special purpose acquisition company (SPAC) instead of the traditional IPO is one of the most effective ways of achieving your goal.
In this article, we will explore the various aspects of going public through SPAC and its pros and cons. Keep reading to learn all about them.
Overview of SPACs
SPACs are also known as “blank check companies.” They saw a rapid rise in 2019 and onward. They provide an alternative to the traditional IPO process and make sure companies can go public quickly, easily, and efficiently.
SPACs are different from regular companies because they don’t run any commercial operations. Instead, a SPAC raises a certain amount of money with the goal of acquiring an operational business within a predetermined time frame, such as two years.
If the merger with SPAC does not happen in the specified period, the cash is returned to the shareholders.
Generally, the decision to go public through SPACs is taken with the help of a comprehensive IPO readiness assessment and pre-IPO advisory services.
Pros of SPACs
The following are the major pros of going public through SPACs:
Going public via SPAC is much quicker and easier than the traditional IPO process. Generally, the entire process of the SPAC merger and going public can be completed in three to six months. On the other hand, a traditional IPO typically takes 12 to 18 months.
Upfront Price Discovery
The price of an IPO is heavily dependent on market conditions, which might keep changing due to global macroeconomic factors.
However, by choosing to go public through SPAC, you can negotiate the price before the completion of the transaction. As a result, it offers more transparency, especially in volatile markets.
Raising Additional Capital
SPAC sponsors have the option of raising additional capital in the form of debt or private investment in public equity. This type of capital is different from the existing original capital. As a result, SPACs are able to gather more money to fund the merger process and also fuel growth.
Less Marketing Cost
The traditional IPO process is long, complicated, and expensive. It involves a significant amount of marketing to make sure it is a success. On the other hand, SPAC mergers are quick and do not need too much capital to generate interest from investors.
Most of the SPAC sponsors are experienced industry professionals who can use their extensive network of contacts to implement the best policies for the newly public company.
Using IPO readiness assessment services makes this process even easier, as these services make sure that the company is ready to go public.
Cons of SPACs
It is important to rely on experienced pre-IPO advisory services to make a comprehensive and realistic plan for the merger and going forward.
Lack of planning can result in different types of complications for the entire process. These complications are mainly caused by the following disadvantages of SPACs:
Challenges in Investment
In a traditional IPO, investors are able to get shares and warrants after the company goes public. Hence, anyone can buy shares in a public company.
On the other hand, multiple challenges can arise when someone wants to invest in a SPAC.
Generally, SPAC share prices are higher than the IPO price. Such high prices can deter some investors from doing business with you.
The success or failure of going public via SPAC is heavily dependent on the experience, skills, and history of the sponsor. Generally, individuals with a strong reputation and high public profiles are behind SPACs.
However, it’s not always necessary for a SPAC to have the support of business leaders or even a famous person to be successful. Therefore, there is always a risk of SPAC going in the wrong direction, so you must thoroughly plan it and rely on IPO readiness assessment services to make smart decisions.
Generally, the cost of an IPO is managed through proper planning. However, if the duration of the merger is much longer than expected, it is possible that the final cost will be highly expensive.
All of the various aspects of SPACs must be considered to control the cost in the best way possible.
In a Nutshell
Overall, SPACs provide a great way for companies to go public without going through the massive complexities of the traditional IPO.
In order to enjoy all of the benefits discussed above and overcome the challenges, it is best for companies to rely on professional IPO readiness assessment and pre-IPO advisory services to ensure that the company is ready to go public through SPAC.