Question was as follows:
"What has driven the recent increase of high profile IPO activity? How do SPACS tie into this?"
Any insight on the best way to approach this question would be of great help.
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1). With Covid companies are strapped for cash to new issuances like IPOs help them raise cash 2) The market has been red hot and recent IPOs have been crushing it which isn’t the norm. Seems like a norm that IPOS sky rocket on their first day Also, there was some pent up demand released has companies halted IPOs in the early 2020 days due to Covid and now going public now. Lastly, some companies may have rushed to the market to IPO before a new president and thus new regulations.
3) Some catalysts for SPACs 1) Given the Vol with Covid, SPACs are allowing companies to get into the market a lot faster and by pass some of the regulations that make IPOs take longer (road shows can’t even happy with Covid) 2) Increase in retail investing. Retail investors have saved cash during Covid and have more time on their hands to invest. They are using this to invest in more speculative and existing products and SPACs fit into that criteria great.
Take that info with a grain of salt as I am new to the investing world.
Thanks for the information. If possible, could you possibly elaborate more on "1) Given the Vol with Covid, SPACs are allowing companies to get into the market a lot faster and by pass some of the regulations that make IPOs take longer (road shows can't even happy with Covid)"? I'm not entirely following.
Valuation is negotiated with the SPAC (albeit with a discount due to SPAC ownership and incentive structure), so there's more certainty in value. IPO valuation is ultimately set by the market as part of syndication, so there's less certainty in value. Given the higher levels of volatility in equity markets recently, a company may wish to lock in a more certain valuation with a SPAC rather than face the uncertainty in the IPO syndication process. The stock will ultimately trade freely either way, but the initial valuation is set differently between the two alternatives.
Second benefit that was mentioned is that SPACs allow a company to bypass certain IPO regulations. The SEC has more onerous and restrictive disclosure requirements for a company going public with an IPO than for the same company going public by merging with a SPAC.
Thanks for adding - go on google and search how a SPACs regulatory disclosure is less onerous than an IPO. SPACs don’t need to be as transparent and don’t need to agree to as much investor transparency than a IPO. Part of the reason SPACs are way riskier .
Allotment process generally does not target retail investors - maybe they reserve only a small %, which you can subscribe for at a certain price without any guarantees that you'll actually get in. Same way with all IPOs, allotments target mostly institutional investors, the good clients of GloCo banks who know how to participate in such an auction. There's just too much cash out there, and thanks to covid, attractive opps for deployment
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