Here are two quick items regarding popular IPO alternatives, SPACs (special purpose acquisition corporations) and primary direct listings:
SPACs. In an interview on CNBC with Andrew Ross Sorkin on Thursday, SEC Chair Jay Clayton addressed the recent SPAC frenzy. (Very loosely, SPACs are companies with no real operations formed to raise capital in an IPO that would be used to acquire an operating company after the IPO, essentially acting as vehicles for the acquired operating companies to go public through the acquisition transactions.) Asked if SPACs are as good as IPOs, Clayton responded that, to the extent that SPACs are alternatives to traditional IPOs, they’re healthy in that they create competition by providing a different way to distribute shares to the public. Importantly, however, they need to provide good disclosure. Right now, the SEC is particularly focused on the compensation and incentives that go to the sponsors of the SPAC. (SPAC sponsors typically receive a portion of the SPAC’s equity to provide compensation and incentives for their work in creating the SPAC, soliciting investors, identifying acquisition targets and, sometimes, assisting the surviving public company to meet its corporate objectives and goals post-merger.) For example, how much equity do they have initially? How much do they receive at the time of the acquisition transaction? The SEC wants to be sure that the investors understand the incentives involved and that, at the time of the investor vote on the acquisition transaction, the disclosure to investors is as rigorous as in an IPO.