As SPACs remain popular, here’s what you need to know

One of the buzzwords in business in 2020 has carried over into 2021 in a major way. While special-purpose acquisition companies (SPACs) are hardly new, the concept took off last year in a way that we had never seen before. And in just three full months of 2021, the numbers are simply staggering.

Per SPACInsider.com, there already have been more SPAC IPOs this year (298) than there were all of last year (248). There already has been more than $97.1 billion in SPAC gross proceeds this year, eclipsing last year’s mark of $83.3 billion and obliterating the $13.6 billion generated from SPACs just two years ago.

Even as recently as 2016, a total of 13 SPACs that year generated $3.5 billion in gross proceeds. Clearly, the popularity of SPACs has exploded in the last 12-24 months. But why? And should you get involved? What are the benefits, and what major risks do you need to know about? Let’s explore each of those topics, along with how Baker Tilly’s Value Architects™ from coast-to-coast can serve as your SPAC advisors every step of the way.

SPACs: the basics and the benefits

A SPAC is a shell corporation, essentially a “blank-check company,” formed with the sole intention of raising capital through an IPO. The goal of a SPAC is to acquire an existing private company (or multiple companies), thus making the company (or companies) public. Upon going public, SPACs have no business operations and typically do not even have any stated targets for acquisition. The shell company’s management team, known as the sponsors, typically has two years to complete an acquisition, or else funds are returned to the investors.

SPACs have existed for decades, but as referenced earlier, they had not experienced significant growth until the last two years. Why have SPACs surged in popularity? There are a variety of reasons, which are directly associated with the following benefits that SPACs present to private companies.

• Ability to go public via a faster and easier process than a traditional IPO
• Access to public markets and the significant capital that often accompanies it
• Opportunity to partner with experienced sponsors who offer leadership, expertise and financial support