What's the difference between SPV and SPAC?
Hi everyone. I follow recent news regarding IPO through SPAC. I want to know how the process differs from tradional IPO? Also what's the difference between 'special purpose vehicle' (SPV) and SPAC?
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Every SPAC is an SPV, but not every SPV is a SPAC. Generally, you set up an SPV for single-deal transactions - think a sponsorless fund who is pooling money to invest in/acquire a single company, a co-investment vehicle of a PE/VC fund so select partners can invest directly and not just have a stake through their fund, etc. And of course a SPAC, which (usually) merges with a single company to take the company public.
On IPO vs. SPAC transaction, I greatly recommend Alex Danco's write-up on the matter.
The one thing I would add here is that the purpose is entirely different. SPACs are a type of shell company that is geared towards acquisition. SPVs are, more broadly, used to move assets off a company's book into separate entities. SPVs have been used for risk management, to securitize and manage CDOs, act as hedging vehicles (Enron did this), transfer property and assets for sale, and be used as tools to raise capital. Think of an SPV as an Asset-Backed Security or a Collateralized Debt Obligation. The SPV is the broad class of security (like an ABS or a CDO) and the type of SPV, such as a SPAC, is your specific focus of the SPV, much like Credit A/R can be the specific focus an ABS or Leveraged Loans can be the specific type of debt that the CDO is managing.
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