A SPAC is a chain of several important tasks, including accumulating capital, discovering a target, validating the discovery, finding further financing, and then managing the target.
This is consistent with the suggestion that sponsors provide significant expertise, and they often become part of targets’ management. According to recent estimates, the costs of accessing public equity markets are actually less with a SPAC than with an IPO in terms of the accessing firm’s market capitalization, valued one year from the date of the merger or offering (and adjusted for growth in the market). Computed in this manner, targets generally do well post-merger. The relevant gap for assessing the target’s bargain is the difference between the value of all of the securities delivered by the target and the amount of cash delivered by the SPAC. While many sophisticated observers believe that SPAC shareholders receive a bad bargain because their shares are subject to dilution, there is less of an argument to be made for protecting target management from aggressive sponsors. The PIPE is an expert that gets paid to certify a SPAC, and it is compensated accordingly.
A SPAC can be understood as an alternative to an IPO, with investors using a large investor, a PIPE, to find out whether the SPAC founder has really chosen a good target or is simply rushing to get a big payoff before investors must be repaid.
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