According to Nasdaq and SpacAlpha, US-listed SPACs accounted for 79% of all IPO in 2021, 53% in 2020, 23% in 2019 and only 3% in 2013. U$77 billion capital raised via SPAC  in the U.S. In 2020, which was almost 6 times the amount in the previous year.

Why are SPACs doing better than IPOs?

Traditional IPO requires heavy preparation works and many underwriters. Companies need to pay a large amount of money to those financial institutions and lawyers as the administration fees. However, most investors become cautious in 2020 when businesses are shut down under the pandemic environment.  Many IPOs, including WeWork and Uber, did not have enough subscribers and needed to terminate the selling process with the underwriting fee paid anyway.  As a result, SPAC is a better alternative because of the smaller administration fee, the shorter time required, lower risk and less restriction by SEC.

On the other hand, many private companies are suffered from the pandemic, facing financial difficulty since 2020. Owners of those private companies are more willing to sell their businesses than before, so SPAC will have a higher chance to find a good private company, negotiate a better deal and get strong support from its shareholders.

SPAC has been introducing many companies to the market since 1990, including Virgin Galactic, DraftKings, Opendoor and Nikola Motor Co. Excitingly, Virgin Galactic’s stock, which went SPAC in 2019, rose from $11.7 on 2nd Jan 2020 to $59.4 on 11 Feb 2021, creating 5 times value in one and a half year.

Source: CNBC

Written by Ms. Florence Ip