Who will win in a battle between Initial Public Offerings (IPOs) and Special-Purpose Acquisition Companies (SPACs)? 2020 treated both options surprisingly well, given the current global climate.
According to CNBC, there were a total of 194 traditional IPO deals in 2020, raising a collective amount of $67 billion. Meanwhile, 200 SPACs raised $64 billion. That means that together, IPOs and SPACs raised more than $130 billion – in a single year.
IPOs Historic Highs
The year brought about historic highs for both IPOs and SPACs. Previously, they had been facing record lows, only to turn around in 2020 with a historic high. Now recovering from a pandemic, the economy has brought about a significant boom, including increased interest in the digital industry. One just needs to look at the success of companies like Zoom and virtual streaming services to understand why.
SPACs Success
Don’t let the groundbreaking success of IPOs fool you – SPACs have also had a fantastic year, and it doesn’t look to be slowing down anytime soon. SPACs are companies that have no commercial operations. Instead, they raise capital through initial public offerings. From there, SPACs obtain existing companies to forge a path forward.
There are over 390 active SPACs in the United States as we speak, with numbers likely to increase as their success is highlighted. That is the nature of the market. According to Gil Ottensoser, head of the SPAC Banking and Capital Markets at BTIG, “SPACs bring many advantages to the capital raising process.”
What advantages was Ottensoser referring to? There are four in total: complete transparency, sponsors, guidance, and an easy exit. In other words, SPACs are transparent because, by law, they must fil an S-4 when they are looking to purchase another company.
Additionally, many experts are joining the SPAC arena, including Bill Ackman, Michael Klein, and TPG Capital. These factors will help move SPACs forward in the following year(s), proving that there is more hidden value to be found here.
Given the number of SPACs currently in the process of gaining acquisitions – 210 – it is safe to assume that 2021 will ultimately report in higher numbers than the previous year. That makes two awe-inspiring years in a row.