The listing of special purpose acquisition vehicles, also known as SPACs, is one of the things that has been hot on Wall Street these past few years.
About 200 SPACs went public in 2020, raising a total of $64 billion between them, according to analysts at Renaissance Capital. What is a SPAC and how can investors get in on it?
A SPAC is a company set up to merge with or acquire an existing business. It initially has no commercial operations, but it goes out and looks for a deal to complete with capital raised. Because the company has no business (only cash) and its future operations are unknown yet, these companies are also known as “cash shells” or “blank check” companies.
The FCA revised its listing rules to attract more listings to London last year despite the UK not seeing as much SPAC business as the US. These rules mainly set out how shares in a SPAC can continue trading on the market once a deal is announced, subject to certain conditions, instead of being suspended. Hambro Perks Acquisition Company was the first SPAC to list in London in November 2021, and they raised £140 million. The firm is looking to complete a combination with a technology-enabled business.
How investors and companies can benefit
Established companies acquired by a SPAC are offered an alternative route to going public compared to a traditional IPO. The company could benefit from the expertise of the SPAC’s management team and have increased access to capital. Another benefit is that going public using a SPAC is cheaper and can be faster than an IPO due to the SPAC already being listed.
The merger between US gambling giant DraftKings and Diamond Eagle Acquisition in June 2020 was one of the biggest SPAC deals. This entity had previously raised $350 million and had the rather vague aim of “…effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.”
When investing, the original subscribers to the pre-IPO fundraise usually get the shares at a discount from the IPO price. Additional opportunities may also arise once a target company has been identified and continues to perform well.
Digital Cloud Holdings I looking to raise pre-IPO funds on Crowd for Angels
Digital Cloud Holdings I is one SPAC currently looking to raise pre-IPO funds on Crowd for Angels. The business will target providers of software for virtual events and conferences. They are also looking to join the Standard List of the London Stock Exchange at the end of January this year.
Grand View Research has estimated the virtual events market to be worth $78 billion in 2019. By 2030 it is forecast to grow to $774 billion.
Visit https://crowdforangels.com/company/digital-cloud-holdings-i-253 to see the full pitch – Capital at risk.
Investing in companies involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio.