Commercial Awareness Discussion Thread

ebitda

Standard Member
Aug 25, 2019
5
17
Hi all,

I've been reading that some companies are bypassing the traditional method of listing via an IPO and are instead listing via the SPAC route.

I understand that at the time of listing SPACs have no business operations and are formed for the purpose of acquiring another company, but I'm a bit confused so I wondered if anybody could explain why they're increasing in popularity now specifically, the benefits/drawbacks of listing this way, and whether this trend is likely to continue?

Hope that makes sense and thanks for any help👍

In essence, both methods provide a mechanism for private companies to enter into public markets. The key difference is the WAY in which this is done.

In a traditional process, the way a company goes public is as you mentioned, through the traditional process of an IPO. For ordinary investors, the way to participate in the IPO offering is to participate at the start of the IPO process (i.e. roadshows), which is time-consuming and cumbersome due to stringent regulatory requirements.

SPACs are an alternative product that allows investors to participate in newly-listed securities but through a much more cost and time-efficient manner. In a SPAC process, a reverse merger occurs, resulting in the target private company becoming a public entity by virtue of the acquiring SPAC vehicle already being a public entity.

From the issuer (company that wants to go public) perspective, a SPAC represents a relatively more certain way of participating in the public markets within a faster timeline. In the traditional IPO, the issuer will need to organise a lengthy book building process to seek investors/underwriters. In a SPAC, the money is already there. You deal with one entity (the SPAC vehicle) rather than negotiating with a ton of underwriters/subscribers.

From an investor perspective, any underwriting and subscription arrangements have already been done when the SPAC vehicle IPO'ed originally. The SPAC IPO process is much quicker than the target company pursuing an IPO because as you rightly noted, the SPAC vehicle lacks meaningful business history and operations (meaning less DD, disclosure requirements etc.). The downside is that investors lack visibility on the target company the SPAC will acquire (which is in effect, what they are investing in). SPAC investors are in effect taking a punt on the credibility of the SPAC management team seeking depressed valuations and generating meaningful value. In an IPO, investors know what and who they are investing in and can draw independent conclusions about the investment viability.

SPACs have been red-hot lately because there's a lot of liquidity now looking for yield (interest rates are ultra-low) and the stock market has been resilient despite the pandemic. There are other complicated reasons (don't worry, unlikely to be asked for interview purposes) why SPACs are attractive (e.g. share/warrant structure, valuation intricacies). There is currently a lot of controversy about the perceived cost savings for SPAC investors which will definitely shape its future popularity.

Hope this helps!
 

AA99

Active Member
Jan 26, 2021
18
132
In essence, both methods provide a mechanism for private companies to enter into public markets. The key difference is the WAY in which this is done.

In a traditional process, the way a company goes public is as you mentioned, through the traditional process of an IPO. For ordinary investors, the way to participate in the IPO offering is to participate at the start of the IPO process (i.e. roadshows), which is time-consuming and cumbersome due to stringent regulatory requirements.

SPACs are an alternative product that allows investors to participate in newly-listed securities but through a much more cost and time-efficient manner. In a SPAC process, a reverse merger occurs, resulting in the target private company becoming a public entity by virtue of the acquiring SPAC vehicle already being a public entity.

From the issuer (company that wants to go public) perspective, a SPAC represents a relatively more certain way of participating in the public markets within a faster timeline. In the traditional IPO, the issuer will need to organise a lengthy book building process to seek investors/underwriters. In a SPAC, the money is already there. You deal with one entity (the SPAC vehicle) rather than negotiating with a ton of underwriters/subscribers.

From an investor perspective, any underwriting and subscription arrangements have already been done when the SPAC vehicle IPO'ed originally. The SPAC IPO process is much quicker than the target company pursuing an IPO because as you rightly noted, the SPAC vehicle lacks meaningful business history and operations (meaning less DD, disclosure requirements etc.). The downside is that investors lack visibility on the target company the SPAC will acquire (which is in effect, what they are investing in). SPAC investors are in effect taking a punt on the credibility of the SPAC management team seeking depressed valuations and generating meaningful value. In an IPO, investors know what and who they are investing in and can draw independent conclusions about the investment viability.

SPACs have been red-hot lately because there's a lot of liquidity now looking for yield (interest rates are ultra-low) and the stock market has been resilient despite the pandemic. There are other complicated reasons (don't worry, unlikely to be asked for interview purposes) why SPACs are attractive (e.g. share/warrant structure, valuation intricacies). There is currently a lot of controversy about the perceived cost savings for SPAC investors which will definitely shape its future popularity.

Hope this helps!
That's fantastic - it makes much more sense now, thank you!
 

Osh

Distinguished Member
Nov 18, 2018
70
15
This q is in the context of the sale of ASDA to Issa bros/TDR Capital

My initial understanding was a share purchase acquisition involves purchasing all of the shares of a company. Therefore, given that this deal structure has Walmart retaining some shares in ASDA. Is it the case that the shares Issa bros/TDR Capital are acquiring, are those that will not belong to Walmart, i.e they're acquiring 90% because Walmart are retaining 10%?
 

Jaysen

Founder, TCLA
Staff member
TCLA Moderator
M&A Bootcamp
  • Feb 17, 2018
    4,053
    6,921
    In essence, both methods provide a mechanism for private companies to enter into public markets. The key difference is the WAY in which this is done.

    In a traditional process, the way a company goes public is as you mentioned, through the traditional process of an IPO. For ordinary investors, the way to participate in the IPO offering is to participate at the start of the IPO process (i.e. roadshows), which is time-consuming and cumbersome due to stringent regulatory requirements.

    SPACs are an alternative product that allows investors to participate in newly-listed securities but through a much more cost and time-efficient manner. In a SPAC process, a reverse merger occurs, resulting in the target private company becoming a public entity by virtue of the acquiring SPAC vehicle already being a public entity.

    From the issuer (company that wants to go public) perspective, a SPAC represents a relatively more certain way of participating in the public markets within a faster timeline. In the traditional IPO, the issuer will need to organise a lengthy book building process to seek investors/underwriters. In a SPAC, the money is already there. You deal with one entity (the SPAC vehicle) rather than negotiating with a ton of underwriters/subscribers.

    From an investor perspective, any underwriting and subscription arrangements have already been done when the SPAC vehicle IPO'ed originally. The SPAC IPO process is much quicker than the target company pursuing an IPO because as you rightly noted, the SPAC vehicle lacks meaningful business history and operations (meaning less DD, disclosure requirements etc.). The downside is that investors lack visibility on the target company the SPAC will acquire (which is in effect, what they are investing in). SPAC investors are in effect taking a punt on the credibility of the SPAC management team seeking depressed valuations and generating meaningful value. In an IPO, investors know what and who they are investing in and can draw independent conclusions about the investment viability.

    SPACs have been red-hot lately because there's a lot of liquidity now looking for yield (interest rates are ultra-low) and the stock market has been resilient despite the pandemic. There are other complicated reasons (don't worry, unlikely to be asked for interview purposes) why SPACs are attractive (e.g. share/warrant structure, valuation intricacies). There is currently a lot of controversy about the perceived cost savings for SPAC investors which will definitely shape its future popularity.

    Hope this helps!

    Great explanation and fitting username!
     
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    Holly

    Legendary Member
    Premium Member
    Forum Winner
    Nov 23, 2019
    316
    366
    This q is in the context of the sale of ASDA to Issa bros/TDR Capital

    My initial understanding was a share purchase acquisition involves purchasing all of the shares of a company. Therefore, given that this deal structure has Walmart retaining some shares in ASDA. Is it the case that the shares Issa bros/TDR Capital are acquiring, are those that will not belong to Walmart, i.e they're acquiring 90% because Walmart are retaining 10%?

    Yeah Walmart are keeping their minority stake in ASDA. So Issa Brothers and TDR Capital will have a majority :)
     
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    Ricky

    Legendary Member
    2020 Community Winner
    Sep 16, 2018
    331
    1,479
    In essence, both methods provide a mechanism for private companies to enter into public markets. The key difference is the WAY in which this is done.

    In a traditional process, the way a company goes public is as you mentioned, through the traditional process of an IPO. For ordinary investors, the way to participate in the IPO offering is to participate at the start of the IPO process (i.e. roadshows), which is time-consuming and cumbersome due to stringent regulatory requirements.

    SPACs are an alternative product that allows investors to participate in newly-listed securities but through a much more cost and time-efficient manner. In a SPAC process, a reverse merger occurs, resulting in the target private company becoming a public entity by virtue of the acquiring SPAC vehicle already being a public entity.

    From the issuer (company that wants to go public) perspective, a SPAC represents a relatively more certain way of participating in the public markets within a faster timeline. In the traditional IPO, the issuer will need to organise a lengthy book building process to seek investors/underwriters. In a SPAC, the money is already there. You deal with one entity (the SPAC vehicle) rather than negotiating with a ton of underwriters/subscribers.

    From an investor perspective, any underwriting and subscription arrangements have already been done when the SPAC vehicle IPO'ed originally. The SPAC IPO process is much quicker than the target company pursuing an IPO because as you rightly noted, the SPAC vehicle lacks meaningful business history and operations (meaning less DD, disclosure requirements etc.). The downside is that investors lack visibility on the target company the SPAC will acquire (which is in effect, what they are investing in). SPAC investors are in effect taking a punt on the credibility of the SPAC management team seeking depressed valuations and generating meaningful value. In an IPO, investors know what and who they are investing in and can draw independent conclusions about the investment viability.

    SPACs have been red-hot lately because there's a lot of liquidity now looking for yield (interest rates are ultra-low) and the stock market has been resilient despite the pandemic. There are other complicated reasons (don't worry, unlikely to be asked for interview purposes) why SPACs are attractive (e.g. share/warrant structure, valuation intricacies). There is currently a lot of controversy about the perceived cost savings for SPAC investors which will definitely shape its future popularity.

    Hope this helps!

    Nice article on SPACs here. Discusses the differences between US/UK.

     

    KB2020

    Well-Known Member
    Gold Member
    Premium Member
    Aug 4, 2020
    20
    126
    Nice article on SPACs here. Discusses the differences between US/UK.


    Another article which explains what a SPAC is and the advantages/risks of using one. Watsons Daily also spoke about these on their podcast last week in relation to WeWork so worth also listening to that if you can!
     

    Jacob Miller

    Legendary Member
    Future Trainee
    Forum Team
  • Feb 15, 2020
    618
    1,716
    Hi all,

    I've been reading that some companies are bypassing the traditional method of listing via an IPO and are instead listing via the SPAC route.

    I understand that at the time of listing SPACs have no business operations and are formed for the purpose of acquiring another company, but I'm a bit confused so I wondered if anybody could explain why they're increasing in popularity now specifically, the benefits/drawbacks of listing this way, and whether this trend is likely to continue?

    Hope that makes sense and thanks for any help👍
    Sorry it took a while to respond to this! Lots of great info been given already, I found this article quite good in explaining some of the reasons:
     

    Jacob Miller

    Legendary Member
    Future Trainee
    Forum Team
  • Feb 15, 2020
    618
    1,716
    Hey, I was wondering if anyone could clarify the difference between a pre-pack sale and a distressed M&A? Seperately they make sense, but together, they seem very similar 🧐
    My understanding, in fairly simple terms, is as follows:
    Pre-pack denotes a situation where the entity being sold is heading towards financial distress/ insolvency but this has not been formally declared, no insolvency practitioner has been appointed etc and it is essentially a private negotiation between the entity and creditors (normally secured - one of the major criticisms of pre-pack deals is that they frequently screw over unsecured and tort creditors). Some of the benefits include privacy/ not having to disclose insolvency which could cause reputational damage.

    Distressed M&A, on the other hand, is generally where an entity is firmly in financial distress and usually where an administrator has already been appointed.

    Remember that a company, at the stage of being at the hands of an administrator, is still considered a going concern and distressed M&A at this stage means it can still be sold as a solvent company on a share sale basis.
     
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    ebitda

    Standard Member
    Aug 25, 2019
    5
    17
    Hey, I was wondering if anyone could clarify the difference between a pre-pack sale and a distressed M&A? Seperately they make sense, but together, they seem very similar 🧐
    Distressed M&A is basically a broad term describing any M&A involving a company in financial distress. Pre-pack sales would fall within distressed M&A.

    A pre-pack sale is a specific restructuring tool that involves the appointed (or soon to be appointed) administrator negotiating the asset sale on behalf of the company. The key reason this is done is (i) speed of execution (to do the deal before formal insolvency happens and to avoid dealing with creditors); and (ii) to avoid any post-closing issues of the transaction being clawed back (e.g. because the transaction was at undervalue) under insolvency laws which may arise if the company itself was negotiating the transaction.
     

    futuretraineesolicitor

    Legendary Member
    Premium Member
    Dec 14, 2019
    310
    65
    Have you looked at Finimise? Also TCLA has a commercial newsletter you can sign up to if you haven't already.
    Hey. Thank you for your answer. I just feel that Finimize is great but it isn't as extensive as Watson's Daily. Reading Watson's Daily on an everyday basis is a huge task and with other websites, I just feel like there isn't much ground that's covered. And yes I've signed up to the TCLA newsletter but I have a lot of free time during the weekdays as well so I was hoping if you could point me to a resource that is pretty exhaustive and detailed.

    Thank You.
     

    futuretraineesolicitor

    Legendary Member
    Premium Member
    Dec 14, 2019
    310
    65
    Hello guys. Hope you all are doing well. My question is around law firms as a business. From what I've understood- there are 2 ways of billing the client. One is the Fixed Fees model which is basically a cap on the overall bill and the second is the Conditional Fee Arrangement model in which the client only pays for the lawyer's services if they win their case. This is what's given in the TCLA Premium module but recently I was watching a webinar on TCLA Premium itself wherein the speaker refers to Alternative Fee Arrangement. I'm guessing that this is another name for the Fixed Fees model. Am I right? @Jaysen @Daniel Boden

    Thank You.
     

    Jacob Miller

    Legendary Member
    Future Trainee
    Forum Team
  • Feb 15, 2020
    618
    1,716
    Hello guys. Hope you all are doing well. My question is around law firms as a business. From what I've understood- there are 2 ways of billing the client. One is the Fixed Fees model which is basically a cap on the overall bill and the second is the Conditional Fee Arrangement model in which the client only pays for the lawyer's services if they win their case. This is what's given in the TCLA Premium module but recently I was watching a webinar on TCLA Premium itself wherein the speaker refers to Alternative Fee Arrangement. I'm guessing that this is another name for the Fixed Fees model. Am I right? @Jaysen @Daniel Boden

    Thank You.
    By my understanding, AFA's are basically a blanket term for any fee arrangement which is not a classic all-hours-billed or fixed fee model - for example, a client having an 'account' of X number of hours per year/ block hours discounted/ etc etc.

    Fixed Fee and AFA models will be far more common at major City firms; CFA's tend to be more for private client work, such as employment discrimination or personal injury and other claims in tort.

    Again, the caveat is that the above is only by my understanding, so do feel free to point out if I'm under a misapprehension.
     
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    futuretraineesolicitor

    Legendary Member
    Premium Member
    Dec 14, 2019
    310
    65
    By my understanding, AFA's are basically a blanket term for any fee arrangement which is not a classic all-hours-billed or fixed fee model - for example, a client having an 'account' of X number of hours per year/ block hours discounted/ etc etc.

    Fixed Fee and AFA models will be far more common at major City firms; CFA's tend to be more for private client work, such as employment discrimination or personal injury and other claims in tort.

    Again, the caveat is that the above is only by my understanding, so do feel free to point out if I'm under a misapprehension.
    Thank you for your help Jacob.
     
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