Anyone who has an interest in the US share market, and in US growth shares, in particular, is probably familiar with the concept of a SPAC (Special Purpose Acquisition Vehicle) company.
SPACs have been growing in popularity over the past year or two. They have also been singled out as a symptom of what some investors call an overheating market.
So what exactly is a SPAC, and are they coming to the ASX?
A SPACtacular idea?
A SPAC is a way that an unlisted company can join the share market. Think of a SPAC as an alternative to an initial public offering (IPO).
However, unlike an IPO, which involves the unilateral listing of a new company's shares, SPACs operate a little differently. They involve a shell company, that exists only for the purposes of the SPAC.
If all parties agree, this shell company merges with an unlisted private company in order to form a new company on the share market. Many speculative investors like to hunt for these shell companies before an official announcement is made.
That's because a SPAC has very little value before an announced merger. And potentially a lot once the merger is announced.
Some famous examples of companies that have listed using a SPAC include Nikola Corporation (NASDAQ: NKLA) and Draftkings Inc (NASDAQ: DKNG).
SPAC that, right on the ASX floor?
At least until now, SPACs have been an American phenomenon. But it might be about to be coming to a whole lot closer to home for Aussie investors. According to reporting in the Australian Financial Review (AFR) today, the ASX is facing a growing chorus of supporters clamouring for SPACs to be allowed on our own ASX.
Especially given that some companies that might have listed on the ASX could instead look to the US for a SPAC merger.
The AFR reports that Ian Taylor, head of equity capital markets at Goldman Sachs in Sydney, is one such voice. He told the AFR that they can be an efficient and useful way for companies to join a share market.
"There are real uncovered gems at very large sizes… the SPAC structure is evolving for the better and I do think that fears of a bubble are overdone," he told the AFR.
However, the ASX will certainly be wary of the frothiness the whole SPAC space has seen in recent times. The AFR report also states that SPACs raised US$78 billion from investors in 2020, but has already raised another US$72 billion in the 2½ months of 2021 so far.
The US Securities and Exchange Commission (SEC) was reportedly forced to issue an alert to retail investors last week. It warned them that celebrity like Jay-Z backing a SPAC is not a reason to invest. Not exactly a problem the ASX would want, you would think.
The ASX is reportedly considering the idea. The AFR tells us that the ASX has stated that, "we will listen to the market and take a cautious approach".
That doesn't sound like a ringing endorsement of the whole process, but this is certainly an interesting space to watch!
