SPAC issuance is no longer a novelty, having gained significant traction in the last few years, and with success stories such as Nikola and DraftKings, and high-profile SPAC sponsors like Bill Ackman, Chamath Palihapitiya and Michael Klein, SPACs are now firmly established as a formidable force and a tried and tested way of raising capital.
After a record 2020, with almost 250 SPACs issued raising c. $83 billion in gross proceeds (according to ‘SPAC Insider’), 2021 looks set to make last year's figure look mediocre! In just the first month of this year, we’ve already seen 91 SPAC IPOs, raising over $25 billion in gross proceeds. While some are concerned of the emergence of a new bubble, the growing acceptance of SPAC as a vehicle for going public shows no signs of going away.
There is no doubt that SPACs bring many advantages (transparency, quick-to-market, access to highprofile sponsors, etc..) and much-needed innovation to the capital raising process. We’re also now seeing high profile billionaires, celebrities and fund managers race to sponsor SPACs (e.g. Intel Chairman Omar Ishrak’s $750m - $1bn planned medtech SPAC or Gores Group’s plans for a $300m SPAC, their 8th raise to date), further adding to the hype.
This rapid surge in the number of SPACs issued has caused fierce competition in sourcing acquisition targets amongst these vehicles, a key concern of those pointing to the emergence of a “SPAC bubble”. Many argue that valuations are being stretched, and SPACs are increasingly turning to early-stage, prerevenue companies with limited track records (such as electric car startups). While there is some validity to these concerns, less than 5% of SPACs in the US have been forced into liquidation to date (as cited by Mr. David Ni, Partner at law firm Sidley Austin), and even those still return investors' capital in full.
A more immediate and pressing challenge facing SPACs presents itself during the often-chaotic de- SPACing process, when already stretched Sponsor teams race towards closing the acquisition. SPACs need to ensure that they differentiate themselves amongst an increasingly crowded landscape, as they compete for institutional investors’ attention during this mission-critical phase. For more updates on SPACs, see our article on sponsors' role in the SPAC slowdown.
At Praexo, our digital capital raising solutions help Sponsors manage the execution and workflow process during de-SPACing, and provide a digital IR tool for Sponsors to engage with institutional investors during this critical process, while dealing with their advisors & banks multiple iterations. Data and technology can vastly improve the efficiency of a SPACs life-cycle, and through our solutions we aim to remove any bottlenecks and de-risk the execution process during de-SPACing to ensure a successful outcome for Sponsors and Investors alike!