However, since 2003, when SPACs experienced their most recent resurgence, SPAC public offerings have arisen in a plethora of industries such as the public sector, mainly seeking to consummate deals in homeland security and government contracting markets, consumer products , energy, energy & construction, financial services, solutions, networking, sports & entertainment and also at high growth emerging markets like China and India.
Back in 2003, the shortage of chances for mid-market public investors to”back” experienced supervisors together with the trend of upsizing private equity funds pushed entrepreneurs to immediately seek out alternative way of securing equity capital and growth funding. At precisely the same time, the rapid growth of hedge funds and assets under management and the dearth of compelling returns available in traditional asset classes directed institutional investors to popularize the SPAC structure given its relatively attractive risk reward profile. SEC governance of the SPAC structure and the higher involvement of the bulge bracket investment banking firms such as Citigroup, Merrill Lynch and Deutsche Bank has additionally served to legitimize this product and perhaps a larger awareness that this technique will be helpful over the long term.
SPACs are forming in many different industries and are also being used for businesses that wish to go public but otherwise cannot. They are also used in areas where financing is rare. Some SPACs go people with a goal industry in mind even though others don’t have preset criteria. Together with SPACs, investors are gambling on management’s ability to be successful.
The tightening of rivalry between these three classes could create a bid to find the very best company and possibly increase valuations.
SPAC IPOs have observed resurgent interest since 2014, together with growing amounts of funds flowing to the concept:
2014: $1.8bn across 12 SPAC IPOs
2015: $3.9bn around 20 SPAC IPOs
2016: $3.5bn around 13 SPAC IPOs
2017: $10.1bn around 34 SPAC IPOs
2018: $10.7bn around 46 SPAC IPOs
2019: $13.6bn around 59 SPAC IPOs
The success of SPACs in developing equity value due to their shareholders has drawn interest from investors like Bill Ackman that has backed three SPACs to date such as the SPAC that required Burger King public.
Private Equity funds TPG, Riverstone, THL and many others have sponsored SPACs lately as their popularity has improved.
By virtue of being public businesses, SPAC might be targeted by short sellers or”Greenmail” investors. Typically, short sellers have not been very busy in SPACs because the stock price stays fairly steady unless there’s a trade declared. Many SPAC stocks are held by large hedge funds and institutional investors who do not actively trade the stock until after the closing of the initial business mix. Recent SPACs integrated provisions that forbid public shareholders, acting alone or in concert, from exercising redemption rights in excess of 20% shareholding, they can not affect executive management.