SPAC Craze: Unicorn’s Medium of Fundraising


In the past few years, many market analysts found the potential of SPAC (Special Purpose Acquisition Company), and it has become more popular, attracting big-name underwriters and investors and raising a record amount of IPO money. More than 50 SPACs have been established in the U.S. SPAC, known as "blank check companies, are a way for companies to vault privately held to publicly traded with a process that's often less complicated than an initial public offering (IPO). Also, it has no commercial operations formed strictly to raise capital to acquire an existing company. For the owners of a smaller company, selling to SPAC can be an attractive option that can add up to 20% to the sale price compared to a typical private equity deal. Besides, a SPAC can offer business owners a faster IPO process under an experienced partner's guidance and less apprehension of the swings in ubiquitous market sentiment.


The SPAC craze has quickly evolved massively. Data from Dealogic showing that SPACs are earning more volume and outnumbering the traditional IPO method. The count from the past 15 months stretches to 474 SPACs, and together, they've raised a monstrous $156 billion. Previously in 2019, SPACs with a volume of 59 raised $13.6 billion, and those numbers sky-rocketed to $83.3 billion with a volume of 248 SPACs. For just three months following 2021, SPACs has expanded the number by adding 226 and raising a massive $83.3 billion, marking a significant 70% of a total IPO in the field. Historically, SPACs started to gain attention in the 1980s, and until recently, they are viewed as the last option for companies raising some money. Just until recently, when the COVID-19 pandemic struck, marking an unprecedented era changed the concept and shared perspective. Considering the current regulations within the social distancing and the virus spread prevention, current macroeconomics conditions with low-interest rates making a comprehensive viewpoint of equities rally have shifted the contemporary market behavior. Those processes cause a lot of excitement because they produce big paydays for their creators, making it easier for startups in booming industries to capitalize on a trivial run-up in the market. They typically enable businesses to circumvent the arduous, detail-heavy process of entering the stock market via the traditional IPO method. But there are some dangerous aspects within the trend, as some consensus said that SPACs are betting on companies struggling to raise money. It could become a sort of sellers' market as businesses are going from one SPAC to another.


In Indonesia, several companies are interested in merging through SPAC. The E-commerce company, Bukalapak, is reportedly exploring a merger plan via the SPAC to list its initial shares on the United States stock exchange. According to Bloomberg, Bukalapak could be worth $ 4 billion to $ 5 billion in a potential SPAC merger. Additionally, Grab Holdings Inc. is also exploring going public in the U.S. through a merger with a blank check company as the Southeast Asian ride-hailing and delivery giant is trying to speed up its listing process through SPAC. Meanwhile, the Indonesia Stock Exchange (IDX) stated that they are currently reviewing the potential for SPAC to list shares in Indonesia's capital market. These circumstances happened because currently, no regulation directly regulates SPAC, either from the IDX or OJK. Moreover, BEI Commissioner Pandu Sjahrir gave instructions that two of the three largest digital companies in Indonesia will IPO this year on the IDX. The closest guesses are Gojek and Tokopedia. "Two of the three companies merged will be the biggest IPO history in Indonesia, and I feel the prospects will be good". All in all, the SPAC craze and boom in the capital market seems to be the updated and fresh way for young companies to enter the exchanges. But to keep in mind, investors should do their research before investing in SPACs, as these new systems are considered riskier than traditional IPOs because there are often no operations attributed.


Sources:

Bloomberg

CNN

CNBC

The Wall Street Journal


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