Podcast Summary
Record-breaking year for SPACs: SPACs gained popularity in 2020, raising over $60 billion, surpassing the previous decade. Reputable investors and quality assets are using this financing vehicle, making it essential to understand this evolving market for potential investing opportunities.
The year 2020 saw an unprecedented surge in the use of Special Purpose Acquisition Companies (SPACs), with over $60 billion raised, surpassing the previous 10 years combined. SPACs allow investors to buy into an IPO with the understanding that the company has a certain amount of time to acquire and bring another company public. The association of SPACs with financial crisis excesses and shady companies has changed, with more reputable investors and higher quality assets using this financing vehicle. While there have been controversies, the trend of using SPACs is not going away anytime soon, making it essential for us to understand more about them. Principal Asset Management, with its 360-degree perspective and expertise in public and private equity and debt, can help identify compelling investing opportunities in this evolving market.
The Importance of a Solid Capital Structure During Economic Uncertainty: During economic uncertainty, a solid capital structure is crucial for businesses to secure funding and navigate challenges. Financing decisions are strategic but even more critical in difficult times.
During times of economic uncertainty and market volatility, the importance of a solid capital structure for businesses comes to the forefront. Larry Wiesenek, Co-President of Cowen and Company, shared his insights from 2020, highlighting how many companies found themselves in a bind when their financing plans didn't hold up against the challenges brought about by the pandemic. He emphasized that financing decisions are always strategic but become even more critical during difficult times. As Cowen and Company focuses on serving growth sectors of the economy, particularly in the US markets, they have witnessed the urgency of corporates in securing funding. With a background in global capital markets at institutions like Lehman and Barclays, Larry brings valuable perspective to the current market landscape and the importance of having a strong capital structure as a foundation for businesses.
Alignment of financing needs and drying up of private market funding led to SPAC boom: SPACs gained popularity in 2020 as a strategic financing option for growth-oriented companies, due to the alignment of their financing needs and the drying up of private market funding. They offer an alternative to traditional IPOs and direct listings.
The unexpected boom in Special Purpose Acquisition Companies (SPACs) in the second half of 2020 can be attributed to the alignment of financing needs for growth-oriented companies and the drying up of private market funding. SPACs, which have been around for over 20 years but gained popularity in 2020, offer a strategic financing option for companies that require capital but are not yet ready for the strict disclosure requirements of a traditional IPO. The increased use of SPACs can also be linked to the rise of direct listings as another alternative for companies going public. Overall, the financial engineering and market technology came together in 2020 to make SPACs a widely utilized financing option.
A more certain and private way for companies to raise capital and enter public market using SPACs: SPACs offer companies in transformative industries a more certain and private way to raise capital and enter public market by engaging in in-depth conversations with potential investors and minimizing risk and uncertainty compared to traditional IPO process.
SPACs (Special Purpose Acquisition Companies) offer companies, especially those with significant future growth prospects but limited historical cash flows, a more certain and private way to raise capital and enter the public market. With the ability to use forward projections and engage in in-depth conversations with potential investors before the deal is announced, companies can minimize the risk and uncertainty associated with the traditional IPO process. This is particularly appealing to companies in transformative industries where the future may not resemble the past or even exist yet. The negotiated process with the SPAC and PIPE (Private Investment in Public Equity) investors provides a level of certainty and privacy that can be attractive to certain corporations, although the IPO market remains robust for others.
Weighing the Options: IPO vs SPAC Merger for Company Going Public: Companies considering going public can choose between an IPO and a SPAC merger. IPO requires bringing new board members, while SPAC allows selection of an aligned industry expert. The success of a SPAC deal depends on capital markets approval, and the choice depends on company's needs and goals.
When a company considers entering the public market, they have the option between an Initial Public Offering (IPO) and a Special Purpose Acquisition Company (SPAC) merger. While the IPO route requires the company to bring new board members with public market experience, selling to a SPAC allows the company to select one that aligns with its industry and brings valuable expertise and connections. The decision of which SPAC to choose is crucial, as it will significantly impact the company's oversight and ecosystem in the public market. The SPAC market is becoming increasingly competitive, with many new SPACs emerging and looking for targets to merge with. However, unlike traditional M&A processes, the success of a SPAC deal depends on the approval of the capital markets, as the SPAC's investors decide whether to roll their investment into the new company or redeem it. Ultimately, the choice between an IPO and a SPAC merger comes down to the specific needs and goals of the company, and the value that each route can bring to the table.
Finding the right partner in a SPAC merger: Large investors consider strategic insights, market credibility, and potential board value when choosing SPAC partners, favoring new energy and tech sectors for future growth. SPACs offer certainty of capital, corporate governance, and potentially better board members, making them a popular choice for companies going public in the US public market.
When it comes to a Special Purpose Acquisition Company (SPAC) merger, finding the right partner is crucial for a company's growth and access to capital. Large institutional investors, often referred to as pipe investors, make their decisions based on the qualitative elements, such as strategic insights, market credibility, and potential board value, rather than just the highest price. The SPAC boom in 2020 was primarily driven by businesses in new energy and alternative tech sectors that require significant investment for future growth. As the market settles down, SPACs will continue to be a viable choice for companies going public, offering benefits like certainty of capital, corporate governance, and potentially better board members. The US public market, being the deepest capital market in the world, makes getting access to this capital essential. The trend is expected to broaden out, with more enterprise software companies considering the SPAC route for its advantages.
Value of Public Market during Economic Uncertainty: The public market offers a more stable and consistent source of capital compared to the private market, making it an attractive option for investors and founders during economic uncertainty.
The public capital markets offer a deeper and more reliable pool of capital compared to the private market. The private market may seem attractive due to the abundance of capital in recent years, but it is not as stable or consistent as the public market. The events of 2020 served as a reminder of the value of the public market, leading to a resurgence of SPACs and an increase in companies going public. Additionally, investors and founders need liquidity, and the lengthy investment cycles in the tech industry have made going public an attractive option once again.
Going Public: New Routes and Influences: The resurgence of public companies is driven by deep liquidity pools, potential for higher valuations, and multiple routes to going public. Retail investors and changing investor landscape are significant factors. Traditional IPOs may be influenced by these alternatives.
We're experiencing a resurgence of public companies after a period of private funding due to the need for early investors to redeploy their capital. This trend is driven by the deep liquidity pools in public markets and the potential for higher valuations. However, valuations in the public market are currently high, and some companies may be going public to take advantage of this. The rise of retail investors and their influence on stock prices, particularly in hypergrowth companies, is also a significant factor. Companies now have multiple routes to going public, including traditional IPOs, SPACs, and direct listings, with the latter potentially allowing companies to raise cash in addition to getting liquidity. The future of traditional IPOs may be influenced by these alternative methods and the changing investor landscape.
Going Public: Direct Listings, IPOs, and Reverse Mergers: Companies have various ways to go public, including Direct Listings, IPOs, and reverse mergers, each with pros and cons. In 2020, sustainability became a significant trend in capital markets, with a focus on solving global problems and investing in eco-friendly opportunities.
Companies have multiple options when it comes to going public, including Direct Listings, IPOs, and reverse mergers. Each path has its advantages and disadvantages, and the best choice depends on the specific circumstances and goals of the company. The most important thing is that companies have the freedom to make informed decisions based on their unique situations. Additionally, 2020 marked a significant milestone for sustainable investments, with stories focused on solving global problems gaining traction and funding in both the private and public markets. This trend is expected to continue in the coming decade, as investors increasingly seek opportunities to put capital to work in sustainable areas. Overall, the diversity of paths to going public and the growing emphasis on sustainability are key developments in the capital markets landscape.
Factors fueling SPAC popularity in 2020: Market volatility, desire for public market liquidity, and tech trends contributed to the surge in SPACs in 2020, but their long-term viability remains uncertain.
The popularity of Special Purpose Acquisition Companies (SPACs) in 2020 can be attributed to a combination of factors, including market volatility, the desire for public market liquidity, and the trend towards new technology and transformational tech. While some believe this trend will continue, others think it may be a one-time event. The future of traditional IPOs remains a topic of debate, with criticisms surrounding the potential for leaving money on the table and high underwriter fees. Overall, the decision to go public through a SPAC or traditional IPO should be a strategic one, but often, companies may be making shorter-term decisions based on current market trends.
Companies exploring new ways to go public beyond traditional roadshows: The rise of the internet and amateur analysts on social media is changing the way companies approach IPOs. Some may opt for direct listings with a capital raise, while others will stick to the traditional roadshow route.
The traditional methods of company education through roadshows may be evolving with the increasing presence of the Internet and amateur analysts on social media. The approval of direct listings with a capital raise adds another layer of complexity to this topic, as companies are presented with more options for going public. This year, it will be interesting to observe which companies choose the traditional roadshow route versus opting for alternative methods. Another exciting development is the launch of the new podcast "Money Stuff," where Bloomberg's Matt Levine and Katie Greifeld will discuss finance and Wall Street news, bringing the popular Money Stuff newsletter to life. Stay tuned for more insights on these topics and more on the Odd Lots podcast.
