Are you considering becoming a public company?
Do you need more capital but are finding private financing difficult?
Going public can provide long-term capital for growth, but taking a company public is a major undertaking.
A traditional IPO is complicated, time consuming and requires extensive disclosure.
Some smaller companies turn to a SPAC (special-purpose acquisition companies) as an alternative.
What is a SPAC?
A Special Purpose Acquisition Company is a public company specifically created to raise money and purchase a private company, taking that company public via merger while shortening the standard IPO process.
Investors invest in the SPAC for the purpose of acquiring a private, operating company.
Assuming SPAC investors are happy with the target operating company, the SPAC merges with it, taking that private company public and bypassing the traditional IPO process.
Why are we talking about SPACs?
The past year has been a very active time for SPACs. In 2016 (an average year) there were 13 new SPACs issued. In 2020 there were 248, and that number has already been surpassed in 2021. For smaller companies, SPACs have some advantages over the traditional IPO process:
- Less legwork. Working with a SPAC typically reduces negotiation because the operating company need only deal with the single purchasing entity.
- Faster. Due diligence requirements are reduced for SPACs, and there is no need for an extended roadshow to court investors.
What is the downside to selling to a SPAC?
Fees relative to capital raised from selling to a SPAC may be higher than if a company goes the traditional IPO route. D&O and other liability insurance may increase after a SPAC purchase as well.
There is also some risk that the SPAC doesn’t find a company to purchase, or the investors don’t approve the company targeted for the transaction.
The bottom line – there are advantages and risks to both the traditional IPO process and a SPAC.
Both are – in our experience – viable ways to take a company public.
No matter which route you choose, you’ll need strong executive leadership with public company experience in core disciplines such as Finance/Accounting, Human Resources, Investor Relations, Technology and Legal. It is essential to build a team and to establish the systems and infrastructure necessary to function properly as a newly public company.
NextLevel has a successful track record of leading companies through the public company readiness process as well as guiding them once it’s complete.
If you need help preparing to go public and/or making sure your post-IPO/SPAC transition is a smooth one, NextLevel is ready to become your trusted partner.