You have undoubtedly read about the continuing popularity of special purpose acquisition companies (SPACs). According to SPACInsider, year-to-date there have been 242 SPAC IPOs, with an average IPO size of $334.9 million. This is remarkable as the next highest year was 2019 when there were 59 SPAC IPOs with an average size of $230.5 million. See the chart below to show the 2020 spike.
As a refresher, SPACs are public shell companies (i.e., blank check companies) formed to use their IPO proceeds to acquire a private company via merger, share exchange, asset acquisition, reorganization or similar business combination within a specific timeframe, usually 18-24 months. A SPAC structure essentially creates another mechanism through which a private company can go public, along with a traditional firm commitment underwritten offerings, direct listings (becoming more popular), and others.
SPAC Mergers with Private Companies
The focus of this post is on the back half of the SPAC life: the SPAC merger with the private company. SPACInsider reports there are approximately 228 SPACs that have completed their IPO and are currently searching for private acquisition targets to take public. Since most of these SPACs will need to find a target in the next 18-24 months (or less), there will be high demand for private companies that have the maturity, growth prospects, experienced management and operations in place to function as a public company.