What Are the Benefits of the SPAC Merger
There has been a significant increase in the number of private companies going public by merging with Special Purpose Acquisition Companies (SPACs). These are blank-check companies that acquire a target company and make it public.
This way of going public is relatively quicker and smoother than the conventional IPO process, especially when companies rely on experts like the accounting firms in Singapore.
In this article, we are pleased to discuss the basics of a SPAC merger and its various benefits for the companies.
What Is A SPAC merger?
A SPAC does not have any commercial value or operations of its own. Its purpose is to complete an IPO and become a public entity, after which it acquires a target company or merges with an existing private company.
As a result, the target company is able to avoid the complexities involved in the traditional IPO process.
The following are the key benefits of a SPAC merger:
Acquisitions or mergers are traditionally lengthy and complex procedures, as they require a lot of disclosures and documents before the authorities will allow them. However, SPACs do not have any commercial operations, so merging with them is quick and easy.
Traditional IPOs take about 12 to 18 months, but SPAC mergers can be completed within about six months. It all depends on the existing working procedures of the private companies, but the short timeframe is highly useful for the companies.
IPOs are significantly influenced by the prevailing market conditions at the time of listing. Consequently, traditional IPOs tend to be characterized by a substantial degree of volatility.
The share price established by a company during the planning phase might differ from the value upon actual listing. Any dramatic shift in market conditions can have adverse ramifications for the company’s operational dynamics and strategic pursuits.
Conversely, pricing with SPACs is negotiated and settled prior to the closure of the transaction. As a result, the volatility associated with SPACs is minimal, if present at all.
This aspect can yield substantial advantages for companies, particularly when navigating uncertain or volatile market environments.
The level of scrutiny involved in traditional IPOs is so rigorous that it leads many companies to reconsider their plans of going public altogether. In contrast, there is a comparatively reduced level of scrutiny associated with companies undergoing mergers or acquisitions with SPACs.
Moreover, it is also possible for SPACs to raise debt or private equity investment along with the original amount of money raised.
This amount can be used to fund the transaction as well as to drive the future growth of the company. Such funds are not available in an IPO due to legal and financial regulatory requirements.
When companies rely on professional accounting firms in Singapore, they can ensure that the experts are handling their finances during the merger as well as after the company becomes public.
Lower Marketing Costs
Startups typically have to spend a lot of money on marketing and public relations to catch the attention of investors and raise funds. At times, only a handful of companies are able to get the right investors in their initial stages.
Many companies may end up exceeding their marketing budget because it can be a make-or-break situation for the company.
The good thing is that there is no such issue in SPACs due to a lack of urgency in generating interest from investors.
The company can take its time to find the right investors for the SPAC transaction to close. It ultimately saves a significant amount of time and resources involved in a company’s marketing strategy.
The concept of angel investors is not something new for businesses. These investors bring a lot of experience, expertise, and skills to the table. Similarly, SPAC sponsors typically have plenty of experience in the industry.
They can guide the acquired company’s owner and management team about the steps they can take to enhance business growth. These sponsors typically come with a large network of financial and industrial professionals.
You can rely on their contacts to expand your own management expertise and make sure you are taking all the right steps to excel in the industry.
SPACs offer a variety of benefits to private companies that want to go public. They also provide a smooth way for investors to invest in organizations.
It is always possible that the SPAC might not be able to find a target company in time, but with the expert’s guidance, the merger or acquisition process becomes smoother and quicker.