SPACs an alternative to an IPO
SPACs, an alternative to an IPO, but is the trend changing?
This week we are looking at firms that raise money by going public with an IPO or initial public offering. That is what you need to focus on for the practice problems and the exam. However, there is growing interest and news in the business press about SPACs, or “Special Purpose Acquisition Companies”. As MBAs, this is something you should have familiarity with.
For this discussion, start by reading the WSJ article about WeWork’s deal to combine with BowX Acquisition Corp. as a means of going public. This is just one of the many deals that are in the works or have been completed in the past couple of years. The article provides details on the what, how, and why of the deal as an example of what type of info would address the questions for this week. There are a number of YouTube videos out there that will help explain SPACs, but I found this really short (7-minute) video that gives a good overview (from TD Ameritrade) and even mentions WeWork specifically: The Video
Once you are more familiar with SPACs, then go to the Forbes article from March 2022 and the May 2022 article “Halfway through 2022” These other two articles highlight how the SPAC (and IPO) markets have changed since the 2020/2021 boom in SPACs.
Again, I am providing the specifics on WeWork as an example, do not use WeWork as your selected SPAC deal to discuss.
- Provide background on the firm that you selected that seeks to enter into a SPAC deal (in the background article, this is WeWork), and which firm is the SPAC (in the background article, this is BowX).
- Why did/is the firm consider going with a SPAC as compared to a traditional IPO? In WeWork’s case, this was prior failed attempts as well as management issues.
- The Forbes article from March 22, 2022, discusses recent SPAC downside issues such as decreased market valuation and the potential for greater SEC regulation. These are considerations that firms seeking funds need to consider. Further, this article summarizes the relative benefits of SPACs vs. IPOs for fundraising. The other article highlights how the markets for both SPACs and IPOs have changed.
- Given the slowing of the SPAC market, do you feel (based on your outside sources), do SPACs remain a viable option for many firms? Or is the opportunity for SPAC funding becoming a “funding of last resort” kind of thing?
Be sure that you provide at least one credible source, but it is likely that you will pick up bits and pieces from multiple articles. If you are using info from an online video, be sure to cite that video, just like any other outside source. For purposes of this discussion, assume the videos are from “credible” sources.