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SPACS and the Fault in the Indian Stars By: Vanshika Sharma (Grant Thornton) Raising money through an IPO has many benefits; however, slower execution, red-tapism and high costs, can make this process cumbersome for companies. Is there a way to raise funds and reduce the complications of IPO? Yes, the solution is SPACS (Special Purpose Acquisition Companies) A SPAC has no commercial operation. Wait, what? If a company does not have any commercial operations, how can it ask public to invest in it? Well, a SPAC can because it is a shell corporation which is formed strictly for the purpose of acquiring or merging with existing companies. For a SPAC, the IPO is already done. It is already listed on the exchange. The target company (the firm which it will acquire) is unknown at the time of IPO. SPACs IPO investors do not have any idea about the company in which they will be investing. SPACs have only 2 years to complete the acquisition or they have to return the funds back to the investors. Though this may sound riskier from an investor’s point of view, it reduces risk for target firms as they can go public within 3-4 months (The traditional IPO process can take 6-12 months to complete). Target companies also benefit from experienced management and enhanced market visibility as SPACs are sponsored by prominent financiers and business executives. SPACS have witnessed a dramatic growth since the advent of the pandemic, especially in the US. (Refer to the following table by SPAC Analytics highlighting the change in total number of SPAC IPOs and Total Value of SPAC IPOs in the last 9 years in the US).
SPAC deals in India are at a nascent stage. SPACs are increasingly looking to India for acquisition targets. StoneBridge Acquisition Corp, a SPAC which is focused on acquiring Indian companies, has raised INR 1,400 crore through IPO. Renew power, Yatra Online Inc., Videocon d2h are a few Indian companies that went public on NASDAQ through SPACs.
