If you are part of a quality management team thinking of funding an acquisition, is it better to try to raise a SPAC or partner with private equity money? According to Mitchell Nussbaum, a partner at law firm Loeb & Loeb, the different vehicles appeal to different types of people because “the public aspect [of SPACs] has pros and cons.”
So, here's Nussbaum's take on the upside and downside of SPACs.
Quicker to Market. SPACs typically take three to four months to clear registration with the SEC, which tends to be shorter than the average length of time it takes to raise a private equity fund.
Immediate Liquidity. Shareholders of acquisition targets can achieve instant liquidity by merging with a SPAC because they become shareholders of a public company.
Dilution. One limitation to the SPAC is that the financing would be raised by virtue of the offering of units of common stock, which creates some dilution of original shareholder value.
One-Shot Deal. A SPAC is limited to one acquisition deal. But after they complete that acquisition, they can act, acquire, or operate as any other public company.
Shareholder Approval. The completion of the acquisition is subject to the approval of the majority of the SPAC's public shareholders. Typically, no more than 20 percent of the public shareholders may elect to convert their shares into cash at the time of the vote.