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SPACs - statistics & facts

2020 was a record-breaking year for IPOs via special purpose acquisition companies (SPACs) in the United States both in terms of sheer volume and gross proceeds, and this trend looks set to continue into 2021. Meanwhile, this trend has not yet taken hold in Europe with only three such IPOs taking place in 2020. SPACs have existed for decades, albeit sometimes under different names, such as blank check companies, blank check vehicles, or shell companies. SPACs are public companies with neither a specific business plan, nor a product or service to sell, which raise money from investors and then aim to merge with a private company. This is sometimes referred to as a backdoor IPO, because the private company goes public without going through the normal process of filing for an IPO, which would necessitate more transparency regarding business operations and profitability. Filing for an IPO with a SPAC is also much quicker for private companies than going the traditional IPO route, which makes it very attractive for investors who want to get a speedy return on their investment.

What makes IPO via SPAC so different to a traditional IPO?

The SPAC investors don't know which private company the SPAC plans to merge with, so their investment decision is based on their trust in the specific investor or entity seeking to make the acquisition. Shaquille O'Neal and former Speaker Paul Ryan were among the most high-profile figures to launch SPACs in 2020. In addition, SPACs are often backed by well-known investment banks, such as Goldman Sachs, or JPMorgan, which adds to their credibility in the eyes of investors. The average initial return after IPOs via SPAC were higher in 2020 than in recent years. However, traditional IPOs still resulted in higher returns in equity in 2020 than SPACs did.

Why were SPACs so popular in 2020?

As it became clear that the coronavirus (COVID-19) outbreak was morphing into a pandemic in early 2020, the financial markets reacted accordingly and value of stock markets worldwide plummeted. Many central banks, including the Federal Reserve, responded to the economic contraction caused by the pandemic and the partial shutdown by pumping more money into banks via quantitative easing. This increased the money supply in the U.S. economy, which further encouraged investors to take a chance on SPAC investments.


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