2020 The Year of the SPAC
Why 2020 was the year of the SPAC
In equity capital markets in the USA, 2020 will not only remembered as the year of the election, or of the pandemic, but also as the year of the SPAC. Some practitioners have seen a direct correlation between the pandemic and the booming SPAC market, even if there has been a steady increase in companies going public via SPACs in the last few years . This year capital markets lawyers have reported unprecedented numbers of SPACs and more firms are actively seeking to advise on SPAC transactions. Many practitioners attribute the uptick in transactions to the speed with which SPACs can take a company public, the fact that SPACs are seen as a safe haven for money, as well as the fact that investors have the security of redemption rights. Therefore in a period in which companies were in need of funding, and in light of the fact that at the beginning of the pandemic the equity markets were harder to access, companies were seeking an alternative route to market and SPACs presented a resilient solution.
This is not the first time that there has been a spike in the SPAC market, but while the in the past there has been intermittent interest in this product, the attraction of this market was not sustained. However, legal advisors widely agree that there has been a recent change in the public perception of the SPAC, and the subsequent increase in its success, pinpointing this shift to the quality of the players investing in the market . With high profile investors looking to SPACs, this has legitimized the product and the SPAC has become viable substitute for a traditional IPO, with the additional appeal that a company can go public before it is fully formed while still securing a favorable valuation . In addition to this, both lawyers and investment bankers have highlighted the attraction of the large volume of money raised via these transactions, such as the success of the widely publicized SPAC raised by Bill Ackman .
This increased interest in the SPAC market has also led the SEC to comment publicly on the market , but established market practitioners are confident that as route of disclosure has been widely accepted and as key individuals at the SEC such as William Hinman advised on SPAC transactions while in private practice, they envision few changes . However, some lawyers anticipate a tightening of the review process as a result of a political change; for practical reasons, as the SEC is handling such a high number of these transactions ; or if there were to be wide-spread negative responses to unsuccessful transactions. However, even with closer SEC scrutiny, it is widely believed that SPACs are a trend that is here to stay . In addition to the quality of the investors, market commentators emphasize that it is only through the success of the de-SPAC market that taking companies public via this route remains a popular choice. Consequently the main reason for a potential downturn in the market would be high-profile failures in the acquisition of target companies .
While some practitioners anticipate that there may be a natural downturn in transactions as the markets is widely held to be saturated, they believe that the SPAC market will continue to have significance. This is not only as a result of the positive reception to the SPAC, but also due to the impact of volume of the money raised via SPACs this year which will have to find targets within the next two years , thus securing ongoing interest in the market beyond 2020.