As SPACs continue their urgent search for appropriate companies to acquire and take public, high growth technology companies are amongst the most sought after targets.
Research suggests that tech businesses are the preferred target for a large number of SPACs that have declared which sectors they are looking to invest in. The research also indicates that the TMT sector accounts for considerably more than other sectors (30% of SPAC investment).
And the attraction goes both ways, it seems. Why is this?
A viable alternative to IPO
SPACs offer young and fast-growing tech businesses seeking a listing an alternative to the traditional IPO.
Many will not have the credentials of a traditional IPO candidate, possibly being unable to deliver the kind of long-term financial and operating track record traditionally expected of a successful IPO.
They may be in the very early stages of development, looking for ways to finance the research and development programmes that their future success depends on, and are certainly likely to be pre-profit and in some cases pre-revenue (unusual on a traditional IPO).
For example, a number of untested electric vehicle companies, including Nikola, Fisker, Lordstown and Canoo, “SPACed” on to the public market in the last year and have yet to generate meaningful revenue.
Disruptive companies tend to have an affinity for disruptive processes, and many tech groups see SPACs as a disruptive force in the IPO market.
They also tend to view the traditional IPO process as cumbersome, time-consuming and expensive, although the evidence suggests that the cost of joining forces with a SPAC can be just as high, unless offset by achieving a high multiple on listing.
Negotiating with a SPAC on price also holds an appeal for venture capital firms looking to offload a business they have supported through early financing. There is far greater uncertainty in pursuing an IPO, where the value achieved will depend heavily on the state of the equity markets on and around listing day.