Introduction: Even Jia Yueting's dream of "ecological anti" can be revived. What is the magic of the SPAC listing model?Goldman Sachs believes that retail investors' interest in non-traditional businesses and the low interest rate environment have boosted the prosperity of SPAC IPOs.
On January 1, the electric car company Faraday Future released a blockbuster announcement with a "triple bombing" effect, claiming that it would be acquired by a U.S. blank cheque company, and at the same time, it was listed on the Nasdaq and was listed on the Nasdaq. The triple purpose of acquisition and raising of 28 billion US dollars.
Even Jia Yueting's dream of "ecological anti" can be revived. SPAC (Special Purpose Acquisition Company) and the model of "borrowing" and listing through the acquisition by SPAC can be regarded as completely entering the people's vision.
As a matter of fact, as early as 2019, SPACs are already showing signs of enthusiasm in the U.S. stock market. SPAC companies will experience explosive growth in 2020, and the SPAC listing model has become a popular listing path for U.S. stocks.
Last year, a total of 229 SPAC companies were listed on the US stock market, with a total of 760 billion US dollars raised, accounting for 59% of the total US IPO scale last year.In the first three weeks of 2021, there were 56 new SPAC IPOs, with a total of 160 billion U.S. dollars, while there were only 9 traditional IPOs with a total of only 40 billion U.S. dollars.
With the momentum of replacing traditional IPOs, what is the magic of the SPAC listing model?
What is SPAC?
SPAC has only cash, no industries and assets. It is essentially a "shell company". Its sole purpose is to raise funds through an IPO, and use these funds to acquire and not be listed companies.The acquired or merged company does not need to take other actions and automatically becomes a listed company.
SPAC can be listed on the Nasdaq or the New York Stock Exchange. Funds are raised through the sale of stocks (usually $10 per share) and warrants. These funds will be placed in trust funds.
If the SPAC cannot merge or acquire a non-listed company within the time limit (usually two years), it will be liquidated and investors can recover the funds.
Compared with the traditional IPO, the SPAC listing model has the characteristics of fast time, low cost, simple process, and guaranteed financing. The SPAC listing model skips the process of roadshows and strict review of financial statements, and the time required is half that of a traditional IPO.
Why is SPAC so popular?
According to Goldman Sachs estimates, there are currently 265 SPAC companies looking for acquisition targets, and their total IPO funds raised reached 820 billion US dollars.According to the 24-month period, they need to complete the acquisition of another company in 2021 or 2022.Last year, the ratio of SPAC equity capital to the value of target mergers and acquisitions was 1:5. If this ratio is maintained, the total value of future acquisitions of these SPAC companies will exceed US$4100 billion, which is equivalent to 12% of the US mergers and acquisitions in the past two years.
Bubble-like emotions surround SPAC.Goldman Sachs believes that retail investors' interest in non-traditional businesses may be a driving force for the prosperity of SPACs.Some new tracks with high growth potential are emerging, and some small and medium-sized enterprises are restricted by their scale, and there is no possibility of public trading.The public's enthusiasm for investment has encouraged these SMEs to obtain financing in the secondary market through the fast-track listing of SPAC.
Last year, there was a significant increase in the listing of new energy vehicle-related companies SPAC, including hydrogen-powered truck manufacturer Nikola, automotive lidar company Velodyne LiDAR, and commercial vehicle electrified power system solutions provider Hyliion.On the fourth trading day after the merger was completed, Nikola's stock price rose to a maximum of US$93.99, which was 10 times higher than the SPAC's US$8 issue price.
Goldman Sachs believes that the current low interest rate environment has also contributed to the prosperity of SPACs.Close to zero interest rates make SPACs very low opportunity cost for investors. SPAC promoters are looking for the stage of acquiring the company and can obtain the lowest return from their initial investment. If they do not like the potential acquisition company, they can choose to redeem their shares (with accrued interest).
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