Can SPACs survive the turbulent markets?

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OPINION: The battering in tech stocks could be viewed as a grim proposition for the once booming special purpose acquisition companies, not so says one operator.

So far 2022 has been forgettable at best for most investors in public and private technology firms. Life has also become harder for companies that want to raise capital, stay independent, and offer a liquidity event to their shareholders.

SPACs offer the option for Australian tech companies to go public in the US without a traditional IPO.Such mergers became popular alternatives to the traditional initial public offer, primarily because they give investors the possibility of redeeming their shares in the SPAC and getting their money back if they don’t like the target or valuation proposed for the merger.

During the same period, 88 companies with a total enterprise value of $US67 billion announced a business combination with a SPAC. A realistic valuation of the target company is the most important aspect of a proposed de-SPAC to discourage redemptions from the SPAC investors and facilitate the efforts to raise capital to satisfy the minimum cash condition of a deal.

One of the most notorious examples of a large earnout is Getty Images, one of the largest licensors of images and videos in the world. The company recently announced one of the largest de-SPACs of 2022, with an enterprise value of $US4.8 billion.

 

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