Many individuals, specifically investors are generally delighted to keep pace with the progress of company’s launch on stock exchange market before the shares are jumping on fever-pitch demand.
However, the professional and institutional players with track record, such as hedge funds, pension funds, angel investors get the ball rolling, therefore leaving out the retail investors from the “racing track” with post-event breadcrumbs. Thus, the newest vehicle of SPAC may allow all investors (whether it is professional or retail) to take part in initial public offering process (IPO) from scratch.
The recent survey made by SPAC Research has shown that the number of SPACs has increasingly swelled in 2020. As of early October 2020, SPACs have launched 128 IPOs, raising a total of $49.1 billion, which, overall, is up from 2019 when just 59 SPACs raised a total of $13.6 billion. These spectacular numbers come to prove that the upcoming years will probably be turbocharged with the tremendous inflow of SPACs.
HOW SPAC WORKS AND WHAT IS THE MYSTERY OF THEIR POPULARITY?
Being a publicly traded entity, the SPAC allows the sponsors/investors to raise money and acquire an existing private company (allowing the acquisition target to have publicly listed stock) more quickly and flexibly, with fewer associated costs and extensive financial disclosure requirements other than the outright IPO. While owning or obtaining share participation in SPAC, the sponsors or investors benefit from stratospheric stock growth, from one side, and bring a private promising company into public investment market, from the other side.
Firstly, being considered as blank-check corporations, in the 1980s, SPACs were not properly and fully regulated, and consequently, were purely deemed as shell companies, engaged in overvalued insider deals or charged with penny-stock fraud, costing investors more than $2 billion a year. In the decades that followed, US Congress stepped in to provide much-needed regulation, requiring, that the proceeds of SPACs be held in escrow accounts or trusts and forbidding their use until the M&As were complete or the company is publicly announced.
In the meantime, the SEC has tightened the SPAC regulations and policies transforming them into a cottage industry in which profound entrepreneurs, hedge-fund managers, and celebrities like Richard Branson, Bill Ackerman and Michael Jordan, mutual fund companies like Fidelity and T. Rowe Price became involved in SPACs. This was due to a convergence of factors pertaining to the SPACs: an excess of available cash, a proliferation of start-ups seeking liquidity or growth capital (focusing investments on the fields of biotech, electric-vehicle companies, technology, digital media, material science, agritech, energy, financial sector, consumer field etc.), and regulatory changes (such as registration with SEC irrespective of the volume and value of assets under management) that had standardized SPAC products.
From then on, the outbreak of COVID-19 pandemic has also greatly influenced the outflow of SPACs since those vehicles are making out perfectly during stock market decline because of the way they operate.
PROS OF SPAC
CONS OF SPAC
HOW TO INVEST IN SPAC?
For the investor to freely break into the universe of SPACs, the latter shall bear in mind the following chain of actions;
TAKEAWAY FOR ARMENIAN REALITY
Despite the concept of SPACs is mainly unknown to the legal and financial community of Armenia, the local investors are entitled to own shares of U.S. SPACs. Moreover, due to the interest in many Armenian startups, a similar vehicle may be established for local and international investors to boost the financials of Armenian startups.
HOW WE CAN HELP?
Our team is experienced in providing sophisticated legal advice in relation to a wide range of complex issues associated with the capital markets. With the help of our collaborating partner network in the U.S., we will be delighted to provide legal assistance in relation with incorporation, structuring and design of SPACs.