Is there a SPAC in your future? Last year, IPOs set a new record—more than double the volume from the prior year, primarily because of SPACs, which constituted over 50% of total offerings. They have become a disruptive force in Tech M&A paying record prices. Special purpose acquisition companies, SPACs for short, or what many refer to as blank check companies, are publicly held investment vehicles. They've been around for decades. Essentially, they go public with a mandate to use the funds to buy a target company. No tedious, costly roadshows are involved for the target, just a vote of the SPAC shareholders.

In the old days, you would build your company, then do an IPO through a traditional investment banker. But lately, IPO action has been tepid. The reason for that is that private companies have been steering clear of the heavy expense of going public and the high reporting costs. Venture capitalists, private equity, hedge funds, angels, and even sovereign funds fill the financing needs for these private firms, which are often bought as a platform or bolt-on in consolidating markets. From 2013 to today, the number of annual SPAC IPOS has grown every year, both in the number of deals and size. In 2013, the average size of the offerings was just shy of $145M. In 2021, a year that's only one quarter over, it is expected to be over a half-billion in size on average. When the COVID pandemic hit, IPOs came to a screeching halt, but SPACs exploded. Last year, there were three times more SPAC deals than the year before, and 2021 will be even greater. In fact, 2021 year to date has already broken last year's record, and that's just in Q1. That's how fast it is growing.

In a highly volatile, uncertain market, the global investment banks saw SPACs with their defined pricing structure and relatively short redemption period of normally 24 months with funds held in trust as a good alternative. They were the perfect investment vehicle for all the dry powder in the world. PE funds alone have over $1.5T to invest. Thus, the traditional investment banks jumped on SPACs, and we may see Asian stock exchanges joining the fray.

The SPAC process is simple, four steps. First, the Formation, the sponsor, and the management team are identified. Second the IPO, registration, and money-raising. Third, a target search to define the suitable prospects. Finally, the shareholders vote to approve the acquisition and consummate the merger. When this is done, you have a new public company. The sponsors of these SPACs are generally managers or investor groups that have a strong track record. Not surprisingly, you've seen the likes of Thoma Bravo, Francisco Partners, Gores, SoftBank, and other major financial players involved, and it's changing daily.

So, how can you as a seller benefit from this SPAC phenomenon? First, you can become a target of SPAC acquisition. Today, for many of the target companies, it isn't about earnings and revenue. It is more about the story. So, there is a wider range of young tech companies being considered as a SPAC. Second, you can be a target of those companies that have gone public through this process. As we've seen over the years, one of the first things a newly public company does is use its cash and stock to make additional acquisitions, both domestic and international. Today, about 20% of all SPACs are dedicated to pure tech, while other SPACs will make tech acquisitions. So, there's going to be a lot of money targeted.

While SPACs are the current darling of public offerings, tech IPOs, in general, are up. There are three basic forms of IPOs. The first, traditional IPOs being an investment bank. Second, direct-to-market listing without an investment bank, you take your own company to the market, selling shares that you already have. And the third is SPAC. Examples of traditional IPOs last year would be Airbnb, DoorDash, and Snowflake, which is the largest tech IPO ever. Asana and Palantir Technologies went public via direct listing. You may remember back in 2019, Spotify did the same thing and Slack followed suit. Notable, recent SPAC public offerings are Fisker and DraftKings. Another one that caught our eye very recently was a $10B deal with eToro, which will go public via a merger with SPAC FinTech acquisition corporation. eToro is a competitor to Robinhood if you've been following that lately. With a change in the law last December, we expect that direct-to-market offerings will increase due to the change in the law allowing you to issue new shares and raise new capital versus selling only issued shares held by current shareholders.

So, are there concerns and some warnings? You bet. First off, the structure with heavy fees and strict pricing means potentially dealing with cash shortfalls. Second, SPACs have done well during this continuous bull market, but they have a checkered history. Remember, they are tied to the success of the stock market and overall financial conditions. For example, from 2008 to 2010, which was the stock market crash, SPACs were not allowed. Third, more recently, many SPACs have become a home for pre-revenue companies, companies about the story, as we mentioned. This could hurt the trend. In the past, markets that were mostly about a story where you raised your cash and built your company and failed as the economy turned. Just look at the heyday of the Neuer Markt in Germany, Nouveau Marché in France, and the VSE in Canada. After the dot-com crash, investors backed away. They disappeared.

In the meantime, for our part, we estimate there is over $100B in new funds targeting acquired tech companies. Corum is right in the middle. Due to our industry-leading research and given Corum's position as the leading seller of privately held tech companies globally, we are in daily contact with all the relevant SPAC players. They attend our events, receive our research, and speak on our panels. They are looking for good companies to acquire, and no one has a bigger database than Corum. In Q1 alone, we saw just shy of 3,000 companies at our direct and co-sponsored events worldwide. Corum is in the middle of negotiating with new SPACs every day. Here's just a sample, redacted correspondence I just got, "Bruce, looking for growth companies in TMT, cloud, security, and AI with a great CEO. Hungry and looking for good acquisitions."

So back to that question, is there a SPAC in your future? We'll have a special SPAC report during each of our quarterly webcast events that will cover all 29 market segments and significant SPAC deals as they happen. You don't want to miss these events. You can view our upcoming schedule here.