An alternate route to go public - through SPAC
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Is there any way for a company to list on the stock market without doing an IPO? In India, No. But in USA, Yes. How?
Private companies can go public through a structure called SPAC. SPAC stands for Special Purpose Acquisition Company. It is essentially a “blank check” company that goes public and raises money from the public with the intent of using the proceeds to acquire a (typically) private company to be determined after going public.
How do SPACs work?
SPAC is sponsored by an asset management company who usually pairs up with a reputable manager, professional executive to raise cash. That cash sits on its balance sheet collecting interest for a couple of years, while it looks for company to take public through SPAC. Once it finds a deal, it brings it to the people who invested in the SPAC, and the shareholders can vote to approve the deal if they want to invest in it, or they could use their redemption rights and ask for their money back.
Why do companies opt for SPAC?
Easy and quick to market: A traditional IPO process is a long and complicated procedure, involving talking to banks, roadshow, negotiating the price of their future offering with a ton of investors etc. But with the SPAC, the company could just negotiate with the SPAC itself, which is managed by one person. So the cos can have a greater certainty of the price they're going to get, quicker to market and don't need to have an S-1-level amount of disclosure
Few companies that took the SPAC route to go public:
DraftKings, the online fantasy sports and betting platform which currently has a market cap of ~$14B and the stock is up over 300% since it went public
Nikola, the electric trucks startup which currently has a market cap of ~$12B and is up over 200% since it went public in 2018
Virgin Galactic, the commercial spaceflight company, which has a market cap of ~$4B and is up over 60% since it went public in 2017
2 of the recent ones expected to go public through SPAC are Fisker, an electric car maker and Opendoor, a real estate brokerage
Given that many Indian startups are of ‘IPO scale’ such as Zomato, Ola, Paytm etc, do you think SPAC would be a viable option for them to public if they wish to list in US?
Interesting reads:
This great piece from @Tanay Jaipuria‘s newsletter: https://tanay.substack.com/p/the-spac-is-back?utm_campaign=post&utm_medium=email&utm_source=copyhttps://www.fool.com/investing/2020/07/10/why-spacs-are-so-popular.aspx
https://www.fool.com/investing/2020/07/10/why-spacs-are-so-popular.aspx