Bill Ackman to wind down SPAC, return $4B to investors
seekingalpha.com
seekingalpha.com
Something like a SPAC is new as a concept, but in the same legal vein - the only difference is which side brings the capital. In the classic cases, the "acquired" company brings the capital, in a SPAC the acquiring company - but (at least here) it is of no matter legally.
Going public is not difficult "just because". It's difficult because there are a lot of reporting and due diligence and research and compliance required before your company is opened up to the public market for investment. It's there to keep garbage companies like Truth Social from going public and bilking unsophisticated investors of their money.
It seems to me that a spac is just a technically legal way to get around the spirit of the law.
It is ok to do because it is ok to do according to the regulators.
What I said is that there are legitimate reasons to use a SPAC vehicle, reasons other than pulling a scam on the investors.
But what's the advantage to the other side of the deal, the new investors?
Does it? The linked article says otherwise: "the extremely poor performance of SPACs that have completed deals during the last two years which has damaged market perceptions of going public by merging with a SPAC".
It seems to be not particularly hard to imagine having a principled belief that SPACs can be used legitimately for shareholder return, but that they also have recently been used indiscriminately, and that the right thing to do is be more careful about when you use this tool, not to forswear using the tool.
But those "arbitrary hoops" help protect public investors. How can investors "be more careful" if the information they need to make a careful decision isn't available or verified?
SPACs seem to be asking investors to invest based solely on faith in the SPAC management. Ackman's collected $4B without even choosing a company to invest in.
You appear to be trying to imply that the regulations and practices around going public are an unconditional good, in all cases, for all new investors in the company. That seems... very black and white. Have you ever been heavily involved in an IPO?
I want to be clear, I'm not saying that what's involved in going public is an unconditional negative -- but there's definitely friction that you pick up. Things that might be tuned too strictly, at least for your company, or that might make sense for other companies but are an arbitrary hoop for yours. Or well-intentioned rules and practices that just aren't accomplishing their intents.
If we say, in the universe of all companies going public, could some of them be materially helped by having a SPAC create a bespoke process for you in terms of how you go public, rather than the cookie cutter template? I mean, sure. And is that compatible with the idea that most SPACs today don't add much value? Also sure.
What's the balance of the situation on the ground? I don't know. I'd be dubious of SPACs right now, without dismissing the idea that in the right circumstances, they can be helpful.
We're talking about IPO/SPAC investors who don't own the stock yet.
Are you suggesting that current investors would pass the savings of skipping the IPO process on to new investors? That would be a tangible benefit of skipping the IPO process for public investors.
But no one seems to be willing to say that will happen.
What actually are these legitimate reasons for SPAC, other than apparently nebulous instant increased returns for early investors?
Or higher reward because the eventual price would be higher after an SPAC acquisition? I don't see why that would be true a priori, so what's the evidence?
Some SPACs had over 90% of such redemptions, which makes it complicated for the private company being acquired: the SPAC may appear to have, say, $300 million in cash, but when the merger is through you only have less than $30 million. Bad news for loss-making growth businesses.
Those regulations are there for reason, and lot of comoanies adhere to them. If a "growth company" is unable or unwilling to do so, it should simply not be a public company (unable) or no business at all (unwilling).
The rest of the work is done with the bankers as they draft the S-1 along with information provided by the management team.
In terms of pitching the bankers, ours was during Covid so there was no travel, it was all done remotely, and given the large financing event that the IPO was, the amount of time invested vs the capital raised was certainly worth it.
IPOs open up liquidity for shareholders, early employees, also provides new avenues for the business to create financing for various activities as you are now seen as a premier partner with all of the major banks. Honestly worth the effort, so long as you continue to run the business with a long term mindset and don't give in too much to the quarterly pressure it's a huge plus.
Besides the obvious benefits to shareholders and early employees it also does open up a significant amount of opportunities when it comes to M&A, if are strategic with that, it can dramatically change the outcomes for your business.
It is a bit annoying, but ultimately reviewing how those systems are operated in the business and documenting them, while tedious, is a good idea because it allows you to review your security measures and you can use it as a catalyst to make changes and invest in areas that often get neglected in the product market fit/growth phase of a business.
So instead of looking at it as a burden, it becomes an opportunity to just improve internal controls.
For people (like me) with a very negative perception of SPACs (a vehicle through which a company that can’t go public the “proper” way goes public) it would be very interesting to hear whether you weighed up the relative benefits of IPO vs. SPAC, or if it was obvious to you that an IPO was the right way to go from the start.
Thanks!
Also, while the IPO process does take about a year, from start to finish, give or take a quarter, the conversation about an IPO starts well in advance. I think the the first time we met with Goldman Sachs was probably in 2017 or 2018 (don't quote me) to discuss IPO planning, and the company went public in 2021.
So while it does take longer through a traditional IPO, the conversation starts much, much earlier, and because it's a year long process, that's part of the planning as well, so it doesn't really come up as a year delay in the roadmap.
So we were already well in to our planning phase as the whole SPAC craze was hitting, and so there were only downsides to it, not real benefit or saving a quarter or two in terms of timing.
The work was mostly building audit trails with "who, what, when, and why" for the actions people were taking in specific parts of our systems (wasn't even required for everyone/everything). From what I saw most of the bad experiences people seem to have had is because there is no clear understanding from the auditors what is needed or people inside the business go way overboard with what is actually required.
We were always very clear with who were the teams that HAD to follow all audit processes and those where it wasn't required so while some places in the business had to do a lot of work (like finance/billing and platform teams) I doubt most product teams had to do much work other than changing some config files or adding some extra logging here and there.
It did help we already had a pretty strong audit trail culture for most operations internally, so most people would either produce extra events or add more fields to existing events instead of having to build a completely new solution to do it.
I'd pick IPO over doing a vc funded round any day of the week. Effort is way less. I never had to give up full days during the IPO process. Never had people on site doing interviews with my team and going over my architecture and scrutinizing every decision I made.
“For SPAC investors, however, the good news is there is only a limited distance left to fall. If you’re trading at $2 for instance, at least there’s only $2 left to conceivably lose.”
The SPAC scene in a nutshell haha.
1. shares listed at $20, I buy one, paying Ackman $20
2. I sell it to you for $30, you pay me that money
3. Ackman returns $20 to you
It also works the other way around if you bought it from me below $20. You'd make a profit.
Ackman still has a reputation to protect, so he needed to look for some sort of reasonable deal with good flippability (that's the Latin term). That's gone now with all the air deflating from the SPAC market. A SPAC play would not likely be the kind of thing he'd buy and hold for ages, especially as everyone knows there's some serious adverse selection going on concerning which firms will go for a SPAC.
There's a fair chance his sales guys are able to simply move the investors over into his main fund or some similar vehicle, so it's not actually such a big deal for him financially. Plus you get kudos for not doing something that might be seen as reckless or profiteering.
Not finding a good deal is understandable, finding a deal and messing it up not so much. With his army of lawyers this looks from the outside more an deliberate strategy then a honest mistake.
Edit: link https://www.bloomberg.com/news/articles/2021-07-19/pershing-...
* - not an investment advice.