Name: What is a SPAC
Uploaded: 2021-01-21
Duration: 4 min 4 s
Description: And why more companies are using them to go public.

And why more companies are using them to go public.

What is a SPAC

Finance

We've been talking about SPAC so often this year because there have been so many of them special purpose acquisition companies. Blank check companies are all the rage. Billy Bean's got one. Even former House Speaker Paul Ryan has got one genomic times I've been approached to do us back. Of course, I know you may have read or heard about specs serving as a trendy alternative to the I P O. Let's dive into what it is and how it works. SPAC stands for Special Purpose Acquisition Company Let's look at company a company A is looking to go public. The I P O process typically requires a lot of paperwork, money, marketing regulations and so on. Company A decides to ditch the traditional I p o process and go public by finding a SPAC partner. The SPAC is essentially a shell corporation with no actual business operations or significant assets. The people behind this pack will try to convince public investors to invest dispatch itself. A publicly traded company will use these investor funds to acquire Company A. If all is approved, then company will merge with this pack and take its place on the public market. Shares are commonly sold at $10 apiece, along with a warrant that allows investors to buy stock at a fixed price because investors don't always know how their capital will be used. Stacks are often referred to as blank check company the facts of yesteryear or nothing like what the facts are there listening today when the New York Stock Exchange did not use the list, facts patiently started listing them in 2017 with a change in our rule structure, and we're already seeing them continue to evolve as they become more modern Products offering over $80 billion was raised through stacks in 2020 248 facts were listed in 2020 which is more than double 2019 total and five times the 2015 total. The biggest back on record. Pershing Square Tintin Holdings, which raised $4 billion in July 2020 that was led by hedge fund manager Bill Ackman. Bill Ackman notoriously had a very large fact that launched, and he changed the mechanisms and the structures of the fact. Let's look at Sfax. I get it. The roadshow is arduous, it's annoying. You can't do it in covid times. This is a really efficient way to match an investor with the company. But that's the thing. It's an investor. It's one investor deciding this is the right price for this company. Um, there is no vetting process. The vetting process happens when it's too late, when it's already a public company. And what we've seen with Nicola and other situations multiple, um yesterday is that oftentimes a lot of these companies would have benefited from having more vetting on a traditional road show. They would never have gotten evaluations they got, and people wouldn't have lost billions of dollars when it turned out that they weren't vetted enough. Brown raises an important point about the downside of stacks. The people who oversee them get paid when they acquire a company. That means they may have a perverse incentive to acquire any company regardless of its value, and that can leave ordinary investors in the lurch. History shows specs have drastically underperformed regular IPOs since 2015, but this could change as Ackman and other respected investors embrace the model. As for the future of how companies decide to go public, the process will continue to become more customizable. Mhm. I think across back direct listings and I P. O s. We're going to start to see people get more creative with what elements of each one of those they want to leverage. And as they come to the public market, like lockups and and the, um, disclosures and and structures around compensation with the fact Wow, that's fascinating.