Special Purpose Acquisition Company vs Initial Public Offering & Reverse Takeover

By Bridge Point Capital | Aug 19th, 2019


SPAC vs Traditional IPO

An initial public offering (IPO) or stock market launch is a type of public offering in which shares of a private company are sold to institutional investors and retail (individual) investors for the first time; an IPO is underwritten by one or more investment banks, also known as an underwriting syndicate, and may involve the listing of stocks on one or more stock exchanges. Through this process, a privately held company will be officially transformed into a public company, allowing its shares to be traded in liquid secondary markets. Initial public offerings can be used to raise new equity capital for the company concerned; create exit channels for private shareholders, such as company founders or private equity investors, to monetize their equity stakes; and to offer a liquid environment for the trading of existing stakes, as well serving as a currency for future M&A acquisitions and financial transactions. 

As compared to traditional IPOs, SPAC IPOs can be significantly quicker. Due to its lack of fundamental operation, both financial statements and prospectus filed during a SPAC IPO are significantly shorter and can be prepared in a matter of weeks (compared to months for a traditional IPO). There are no historical financial results to be disclosed or assets to be described, and business risk factors are minimal. As a result, the SEC comments are usually few and normally do not require cumbersome changes. The entire SPAC IPO process can be accomplished in as soon as fifteen weeks from its starting point. On the other hand, the De-SPAC transaction involves many of the same requirements as would be applicable to an IPO of the target business, including audited financial statements and other disclosure items which may not otherwise be applicable if the target business were acquired by a public operating company.