Role of PIPEs in SPACs 💰

Hope you had a restful and patriotic holiday weekend! We're shifting from our regularly scheduled Tuesday Investor Highlight to focus on the topic du jour, PIPEs as SPAC investors. We'll be back tomorrow with a spotlight on Sequoia Capital.



 

If you’re a regular reader of the Daily Stack, you know that SPAC deals have made a huge comeback in the last year, with 349 SPAC IPOs already this year according to SPACInsider data. Today we’re discussing the latest craze in SPAC coverage, PIPE deals.

A Brief Overview of SPACs & PIPEs

SPACs, or special purpose acquisition companies, have become a favorable means of making an initial public offering because these public special acquisition companies have already done the hard work to take themselves public. Private companies enjoy the set price they’re offered in valuation as an increasing number of SPACs approach the end of a mandated two-year purchase period and vie for a small pool of eligible companies with which to merge.

But the results have been less than promising. According to a Renaissance Capital study of 313 SPAC IPOs from 2015 to late 2020, the average return on completed mergers was -10%, compared to the 46% return of traditional IPOs. Investors are wary of investing in SPACs seen as too eager to make a purchase on a company they hardly understand. Meanwhile, regulators are scrutinizing deals more closely.

However, not all SPACs are bad SPACs. Increasing attention (and confidence) has been given to PIPE deals (private investment in public equity) in which accredited investors, including institutional investors like hedge and mutual funds, will buy up a large portion of stock in a SPAC, generally at a discounted price. The influx of cash helps the SPAC to acquire larger businesses as well as provides enough capital to support the company in the event SPAC investors choose to sell the stock after a target company is announced.

While the concept isn't a new one (SPACs were wildly popular during the 2008 recession when it was difficult to raise capital), expect to see more articles devoted to the topic, as attention goes to where the money is flowing.

This week’s IPOs
 

LinkDoc Technology : Chinese software company applying AI to reach medical solutions

IPO: LDOC

Expected Share Price: $17.50-19.50

Shares: 10.825MM


Unicycle Therapeutics: Biotechnology focusing on kidney disease

IPO: UNCY

Expected Share Price: $5-6

Shares: $4.55MM