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The SPAC Incursion

Updated: Feb 10, 2019

For years Private Equity has eaten into the IPO market. SPAC IPOs are now eating into the Private Equity space.

Suddenly SPACs are all the rage! And it is an interesting concept, too.

SPACs are set up specifically to acquire a target company. Obviously, it makes sense to not disclose the target's name because that will simply push up the cost of acquiring the target. Anything you are buying, you want to buy quietly. But the SPAC needs money to complete the acquisition. So, the SPAC will raise money through an IPO, the goal of which is the specific acquisition: and target names will be disclosed after the acquisition is completed.

If you want to look up some SPAC examples, look here.

Here is the interesting thing. Private Equity has substantially intruded in to the public markets and many potential IPOs have been swallowed up by the likes of Softbank. Companies have achieved billion-dollar valuations without ever being list (called Unicorns.) While Private Equity does eventually seek public markets, the public markets which previously were seen as the only way to get large capital infusions, do miss listing by the new economy big names, such as Uber, WeWork (now The We Company) and others.

SPAC-IPOs take the battle to the other camp. What might originally have been a private equity deal or a LBO (funding a takeover), is now seen in the public IPO space. Watch the SPAC space!

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