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Key Points:
- SPACs accounted for half of total IPO funding in the US in 2020.
- SPACs raised more money in 2020 than in the previous 10 years combined.
- While SPACs offer benefits to sponsors, public investors face trade-offs and risks.
- On average, SPAC structures have led to a decrease in value of merged entities over time.
- SPACs have higher expenses than traditional IPOs, which can add up to over 50% of proceeds.
- Sponsors often benefit from the upside but outsource the downside, putting public investors at a disadvantage.
- SPACs may face performance and regulatory risks, and lack diversification benefits.
- If SPAC fever continues, it could mark a new era for public markets, but with potential risks.
Special-purpose acquisition companies (SPACs) have gained popularity, accounting for half of total initial public offering (IPO) funding in the United States in 2020. They raised more money in 2020 than in the 10 previous years combined. However, while SPACs offer benefits to sponsors, public investors face trade-offs and risks. On average, SPAC structures have led to a decrease in the value of merged entities over time. SPACs also have higher expenses than traditional IPOs, which can add up to over 50% of proceeds. Sponsors often benefit from the upside but outsource the downside, putting public investors at a disadvantage. Furthermore, SPACs may face performance and regulatory risks, and lack diversification benefits. If SPAC fever continues, it could mark a new era for public markets, but with potential risks.
