July 9, 2018

PE Exit Strategies: IPOs v. SPACs

SPACs have increased in popularity among private equity funds in recent years, with major PE sponsors raising SPACs or selling portfolio companies to them. As SPACs have gained credibility among PE sponsors, they’ve become a more viable option when considering a public market exit strategy for PE fund portfolio companies.

This Weil blog discusses the SPAC alternative and provides a chart setting forth the similarities & differences between taking a company public through a traditional IPO vs. through a SPAC.  This excerpt summarizes some of the pros & cons of the two alternatives:

There can be significant advantages to structuring a public market exit for a portfolio company through a SPAC rather than a traditional IPO, including being able to customize the terms of the exit so that the selling sponsor can share in the founder shares and warrants received by the SPAC sponsor in connection with the formation of the SPAC and structuring the sale as an all cash deal or some combination of cash and stock. On the flip side, there is market risk in closing the SPAC transaction due to the redemption rights of the SPAC stockholders (although there is also market risk with an IPO obviously).

John Jenkins