An Insight into the Special Purpose Acquisition Company (SPAC) Market in 2022
A Special Purpose Acquisition Company (SPAC) is a blank-check company that is created with the purpose of making a company public or merging with another organization.
In the last few years, there has been a tremendous increase in the popularity of SPACs, especially among businesses that want to go public.
The popularity of SPACs can be judged by the fact that in 2021, there were 613 SPAC initial public offerings (IPOs), which was an increase from only 248 SPAC IPO in 2020.
Another factor that has increased the popularity of SPACs is the availability of the professionals who offer thorough pre-IPO advisory on the procedure to assist them in going public.
The trend of going public through a SPAC is slowing down, but there are still a lot of opportunities involved in forming a SPAC. Let’s discuss the overall trend of the SPAC market in 2022.
A Slowdown in SPACs Activities
The initial few months of 2022 saw a significant slowdown in SPAC activity compared to the preceding years.
Only 77 de-SPAC deals were publicly announced and finalized during this time period. On the other hand, 167 de-SPAC transactions were announced in the same months of 2021.
Another indication of slow SPAC activity in 2022 is the fact that 2022 has seen the highest number of withdrawn SPAC deals. By the end of August 2022, 143 SPAC IPOs had been withdrawn, and 46 of them had been completely terminated.
A major reason behind this statistic is that the SPACs that went public in 2020 are now nearing their deadlines to complete the arrangements. As a result, a lot of them need another extension or to completely dissolve the SPAC.
SPACs that are completing their transactions this year are also facing the serious issue of rising redemption rates.
A higher redemption rate means it is becoming more challenging for organizations to complete business combinations, leading to decreased cash proceeds that a company can use for future working procedures.
The sponsors of the SPACs have taken many steps, including direct talks with the stakeholders, to try to lessen the effects of more redemptions.
The overall slowdown in activity can be linked to various other factors, such as the inefficient performance of the de-SPACed companies, record-breaking inflation, and overall economic uncertainty.
Opportunities
Despite numerous challenges and a slowdown in activity, the idea of forming SPACs to go public is not expected to die down any time soon. This is because SPACs are much more flexible than traditional IPO procedures.
Nowadays, SPACs are changing to adapt to new conditions. A professional audit firm in Malaysia can greatly help in this regard, as they have plenty of experience in dealing with high-growth companies as well as organizations that are at the pre-revenue stage.
Some of the best examples of SPACs in 2022 have been companies that have been making steady profits.
Moreover, the popularity of SPAC is expanding to other sectors besides the technology industry. Several industries, like transportation, construction, and mining, are going public by forming SPACs.
Applications of SPACs are also becoming popular in emerging markets. According to statistics, only 4.2% of business combination targets were set in 2021, but this figure increased to 10.4% in 2022.
The flexibility of the SPACs makes sure that, despite some challenges, they are able to adopt different creative structures and make the business combinations successful by attracting investors.
Tax Concerns
Due to a greater focus on SPACs by different companies, authorities have also become more strict about the regulations associated with such entities. Most of the regulations are related to the taxable liquidations of these companies.
Maximum compliance with the law can be ensured by relying on professional pre-IPO advisory services of an audit firm in Malaysia.
These experts will make sure that all of the important legal aspects are covered throughout the process of going public via SPAC to avoid any issue from emerging in the first place.
In Closing
Taking into account all of these factors, it seems likely that the SPAC market will continue to face challenges in 2023. However, the effects of these problems will be lessened if the best practices for forming a SPAC and going public are implemented.
A lot of businesses are still not well versed with the concept of SPAC, so it would not be surprising if there was another huge boost in SPAC registrations in 2023 and beyond.
If you are considering taking your company public by forming a SPAC, it is recommended to engage the service of an experienced audit firm in Malaysia to get all the professional help needed in this regard.
