SPACs have raised over $38 billion in 2021, but new NYSE rule looms

[Olde Hornet]

SPACs have raised over $38 billion in 2021, but new NYSE rule looms

The SPAC craze doesn't seem to be slowing down in 2021 but could face new challenges with NYSE direct listing rule change.

www.cnbc.com

The 2021 IPO market is already on fire six weeks into the new year, with SPACs leading the way.

SPACs have raised more than $38 billion year to date, with an average of $296 million for 128 SPAC IPOs, according to SPACInsider. That’s nearly half the money raised by SPACs in 2020. Last year, SPACs hauled in a record $83 billion with an average of nearly $335 million for 248 listings.

This year’s numbers dwarf those in previous years. In 2019, only $13.6 billion were raised through SPACs. In 2018 and 2017, they collected $10.7 billion and $10 billion, respectively.

The big question this year is how a change to the New York Stock Exchange’s direct listing rules will impact the IPO market.

The new rule, which was approved by the Securities and Exchange Commission in late December, will allow companies to raise fresh capital through direct listings as opposed to just selling existing shares. Under the change, companies can raise cash from retail investors as well as by selling existing shares of the company. Making direct listings more attractive could cut demand for a SPAC or traditional initial public offerings.

 

[Olde Hornet]

A SPAC is a high-risk but potentially profitable way to get in on the ground floor of a new stock — here's everything investors need to know​

A SPAC is a high-risk but potentially profitable way to get in on the ground floor of a new stock

A SPAC (Special Purpose Acquisition Company) is a company created solely to buy another firm and take it public — an alternative to a traditional IPO.

www.businessinsider.com

What is a SPAC?​

SPAC is an acronym for a Special Purpose Acquisition Company, basically a publicly traded firm that has no operations, no assets — other than a war chest of cash — and just one stated business plan: to eventually buy another company.

A SPAC is generally formed by a group of investors, called sponsors, with a strong background in a particular industry or business sector. They raise funds from other investors, and use the money to acquire an existing, privately held company — and then take it public in an IPO.

When they launch the SPAC, the sponsors generally either don't have a specific target in mind, or they're not ready to name it in order to avoid the extensive paperwork and disclosures required by the Securities and Exchange Commission (SEC).

The early-bird underwriters and institutional investors, and the individual investors who generally come in later, typically have no idea exactly how the sponsors will spend the money. So early investors are basically relying on the sponsors' reputation in the hope of snagging a good investment.