Yesterday, I wrote about how sometimes I think we mistake needless, redundant ideas for exciting, innovative new solutions. I'm not quite ready to say that SPACs are a needless, redundant idea, but they certainly don't seem to be transforming Wall Street the way someone may have predicted last year.
The general intent is valid: SPACs let companies go public faster and without needing to kiss Jamie Dimon's ring during a roadshow. They don't have to pay such extortionate fees to an investment bank, there are fewer annoying intermediary steps, and companies can often get a higher valuation (at least initially) by going public in this fashion.
This all sounds great, and yet SPAC mergers took an absolute nose dive last quarter (61 in Q2 2021 vs 298 in Q1). Sure, the new SEC accounting rules introduced in April lessened the incentive pretty drastically to go public via SPAC. But it definitely doesn't help that CNBC's Post SPAC index is down around 25% in the last six months while the S&P 500 is up around 12%. New accounting rules suck, but going public via a channel where the neighboring companies have lost a quarter of their value in the last six months sucks way more.
So once again, we find ourselves in a place where we tried innovating and, as it turns out, the established way — a traditional IPO — works best. The stock price is less volatile. The filter into the public markets is stronger. The company's valuation and the money raised is more predictable. The traditional IPO process is a clever solution to a problem that just happens to be wearing dated clothing. But that doesn't mean it's a bad idea.
Besides, I'm sure Jamie Dimon's ring tastes amazing.
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