Advantages of SPACs Over Traditional IPOs
Background: What has changed in the recent past?
• Nature of SPAC Targets: During the boom of 2020, many de-SPAC targets had
little to no operating history with a focus on projections. In the more recent past,
many targets have been more mature companies with clear operating histories that
substantiate the deal valuation.
• PIPE Market: The private investment in public equity (PIPE) market has gotten
increasingly more difficult with, by way of example, (i) increased downward pressure
on valuation by PIPE investors, (ii) PIPEs taking longer to get fully subscribed (if they
get there at all), and (iii) anchor PIPE investors expecting more from sponsors in
consideration for being anchor investors.
• Redemptions: There have been increasing levels of SPAC redemptions as many
SPACS, including those approaching their merger votes, are trading below their IPO
prices.
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Takeaway: Deals are getting done, in the automotive space and otherwise, but
there is an increased focused on financial fundamentals.
Morgan Lewis
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