Positives And Negatives: SPACs Vs. Traditional IPOs

Positives And Negatives: SPACs Vs. Traditional IPOs
The rise of SPACs was one of the big stories for investors in 2020. Based on the record number of SPACs filed and money raised in early 2021, the trend looks primed to continue.

Bank of America analyst Michael Carrier shares the positives and negatives of the SPAC market for both investors and private companies to consider.

The SPAC Market: SPACs or special purpose acquisition companies, have been around since the 1990s. Also referred to as "blank check" companies, SPACs are now a popular vehicle for private companies to hit the public markets.

In 2020, 248 SPACs came to market. This was an increase of more than four times compared to the prior year. Carrier says the rise stems from investors seeking alternative sources of yield, private companies pursuing alternative routes to market, and retail investors having a bigger appetite for private assets.

The units that SPACs offer also are particularly attractive to arbitragers, Carrier said.
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