
SPAC Man Begins - jger15
https://alexdanco.com/2020/07/24/spac-man-begins/
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danbmil99
There is an older and less flattering term for this. It's called a reverse
merger. Typically, you start with a company that sold aluminum siding in the
seventies and has no assets but happens to still be on a public Exchange.

They call this the vehicle. The rest works just like the article says, you
merge the shell company in with the company that actually has value and avoid
the IPO process.

As the article honestly points out, the whole point of this is to avoid the
scrutiny that you typically get from an investment Bank. It also skirts the
spirit of a number of regulations put in place to keep people from losing
their retirement nest egg on snake oil.

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ackbar03
Does anyone know how one should go about learning about all these different
financing methods / vehicles if I wanted to read about it by myself? And say
for some reason I wanted to do an IPO/finance through a SPAC or something
myself, where would I start and what would I need (assuming I don't want to
hire some investment bank for me).

I used to work as a trader at an investment bank and I've always been curious
about the corporate finance side of the business. I have a friend who worked
in corp finance at a boutique IB and struck out by himself. He eventually
ended up running his own boutique bank in China and deals almost exclusively
with SPAC's by helping his Chinese clients list on Nasdaq or whatever. I was
always curious how he did it and what one needs to do if he wanted to follow a
similar path

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peter_d_sherman
> _" While the normal IPO process starts with a private business who wants to
> go public, a SPAC is the opposite: it starts with a public business, that is
> nothing.

A SPAC begins its life when a well-known promoter, like Chamath or Bill
Ackman, raises money in an IPO with the following prospectus:

“I am raising money to take a company public. I don’t know which one yet; the
money is going to go in a bag until I find one. When I do, my publicly traded
bag of money will merge with the private business, and in doing so, take them
public. You, the investors, will have your SPAC shares convert to shares in
the new business, at an attractively negotiated price, plus warrants to buy
more so you can profit on the upside.

Because I’m so smart, I’m going to pick a business that’s amazing and that
you’ll want to own. If you disagree, you’ll have a chance to get your money
back. But if I’m right, you’ll make a ton on the upside.”"_

An interesting sales proposition, to be sure...

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pedrocr
The IPO pop is definitely giving away value to a bunch of well connected
investors who have added no value. Facebook solved it by pricing high and
using the greenshoe. Most companies don't seem to have enough leverage to get
that and even with Facebook there were plenty of influential people berating
them about it. But Google's solution of a dutch auction IPO seems like a more
natural solution. To manage the discontinuity of the moment the company starts
trading set up the trading book early with the auction and then start trading
at a well discovered price. Why hasn't that become standard? Just the
gatekeeping of the banks again? Seems like the natural thing to offer next for
one of the companies that does markets for still private startups.

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jrott
I'm missing what is good for a company when they go through a SPAC the 20% fee
is close to what the average POP for an IPO which historically has been 13-15%
and last year was 22%[1]and in exchange for dealing with a bunch of investment
bankers you get to give up a board seat at best or being the CEO of your
company to the promoter. Is it really just to dodge regulations?

[1][https://www.cnbc.com/2019/05/09/the-ipo-market-started-
stron...](https://www.cnbc.com/2019/05/09/the-ipo-market-started-strong-and-
could-soon-take-off.html)

~~~
Lazare
The general tradeoff here is:

An IPO is a difficult, involved process. You jump through a lot of hoops, you
have to write a bunch of documents, you do a road show, and at the end of it
you don't even know how much money you're going to raise. As with WeWork, it's
very possible the IPO may be derailed before it gets to the end, or the price
will be cut in order to get it done (meaning you don't raise what you
expected). Plus, the price may drop after the IPO (meaning many of your new
investors are mad and you get bad press), or it pops a bunch after the IPO
(meaning many of your old investors are mad and you get bad press). It's not a
great process! On the other hand, you'll probably get something a bit _like_ a
market price - as you note, IPO prices tend to be within 15-20% of the
eventual market price.

A SPAC is different. You talk to one guy (or team, at any rate), you negotiate
a deal for a fixed price, you sign, it's done. Sure, it's very, very
expensive, because you're paying to get rid of that risk, but maybe you really
hate risk?

(Note: the 20% fee is only one part of the cost of the SPAC. And there's still
a chance of a pop, as with Nikola who surged enormously. Much of the money
they raised was at $10 per share, but they closed at $33.97 on the first day,
and $53.95 a month later. Good deal for some...but not for Nikola or their
original investors.)

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agency
Obligatory Matt Levine take[1]

> I just want to spell it out a bit here because, again, the common story
> these days is that a SPAC is a substitute for an IPO that is cheaper and
> avoids mispricing. I have argued before that that is wrong, but in
> particular here I want to point out that the SPAC is (sometimes) a marriage
> and an IPO generally isn’t.

> An IPO is, you sell stock to some people who want to buy it, and in general
> you hope that they’ll be good stable long-term investors, but you don’t lock
> them up forever. They get to vote for directors, usually, but the big IPO
> investors don’t generally get their own representatives on your board. And
> in particular, the trend in tech unicorn IPOs in recent years has been to
> minimize the power and input of public investors. Lots of tech unicorns go
> public with dual-class stock so that investors can’t really vote for
> directors; the founders’ goal in going public is to raise money (or at least
> get liquidity for early investors) but keep control of their companies for
> themselves. They are not looking for a marriage partner; they are looking
> for a transaction, for money, while keeping their independence.

> Which is fine too! Some companies stay independent, some merge, some want
> something in between, a powerful outside shareholder who can give them
> advice and support. My point here is just that if you are a tech unicorn
> founder, and your goals are (1) to go public without giving up any control
> to outside public shareholders and (2) to go public without going through
> the vagaries of the IPO process, you may have to make some tradeoffs.

[1]
[https://www.bloomberg.com/opinion/articles/2020-07-24/goldma...](https://www.bloomberg.com/opinion/articles/2020-07-24/goldman-
does-a-malaysia-deal)

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partyboat1586
Spac is slang for stupid in England. Might want to reconsider the name.

~~~
mellosouls
It's worse than that, it's a nasty insult for disabled people from "spastic"
(also used: "spaz" which may be familiar to US readers and is much more
derogatory in the UK).

It's got _terrible_ connotations in the UK.

[https://www.wikipedia.org/wiki/Spastic](https://www.wikipedia.org/wiki/Spastic)

~~~
microcolonel
I mean, we have _git_ so I think we'll survive.

~~~
mellosouls
"Git" is not even remotely close to the nastiness of the words here.

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objektif
So basically this article describes how not to give Wall Street crooks your
money and instead keep more money for Silicon Valley crooks. Whats up with
this "system" talk? Jeez I think SV types on the west coast need to grow up a
bit. He even admits trying to SPAC a crypto company. That is more system than
the system itself.

~~~
Lazare
Not even that; the author didn't think through the math right. A SPAC is much
_more_ expensive than an IPO:

1\. Sponsor takes 20% 2\. Warrants give investors the right to buy buy shares
cheaply 3\. You still get the IPO pop (Nikola and DraftKings both had enormous
pops after becoming public)

~~~
thrill
When you IPO you sell a (usually) significant percentage (generally from 20%
to 80%) of your company for an opening price - you don't get to capitalize on
the hoped-for increase except with the percentage you didn't sell, either
personally or corporately, as there are usually many limitations to discourage
loss of the established personnel to sudden wealth syndrome. In the SPAC (and
similar) models, you "sell" 20% of your company for a fixed amount (in
exchange for the SPAC's cash). The remainder is yours to nurture as needed.
With a little planning you avoid a lot of work generally irrelevant to your
core business by finding an available company to be acquired by and who is by
experience a good partner for publicly traded relationships.

