During the last several years SPACs have gone mainstream with brand name private equity sponsors raising SPACs and brand name private equity sponsors selling portfolio companies to SPACs. Private equity sponsors who are considering a public markets exit for their portfolio companies may want to consider the pros and cons of taking their portfolio company public through a traditional IPO or a SPAC. The chart below summarizes the principal similarities and differences between effecting a public market exit through an IPO or a SPAC.

TopicExit Through an IPOExit Through a SPAC
Suitability of company for public marketsCertain companies have attributes (growth prospects, industry type, leadership team) that increase the likelihood that they may IPO successfullyAble to take public companies that are not obvious IPO candidates
ValuationValuation depends upon market demandValuation is determined by negotiation between SPAC sponsor and sellers
Economics for sellersNo incremental economicsAbility to share in SPAC sponsor founder shares and warrants
Ability to rolloverAutomatic “rollover” of shares not sold in the IPO by selling stockholdersCan negotiate with SPAC sponsor to rollover shares into SPAC vehicle
Expense of going publicExpensive process due to professional fees and underwriting discountsMarginally less expensive as no underwriting discounts involved
Use of proceedsAbility to raise equity capital to fund the business and repay debtMay be able to raise equity capital through a related PIPE transaction or use existing SPAC capital to repay debt or fund operations
Ability to monetize equity through going publicAble to sell secondary shares in IPOAbility to receive cash consideration in the acquisition and to sell any secondary shares after the transaction
Process involved in going publicRequires extensive SEC level disclosure and SEC reviewRequires extensive SEC level disclosure and SEC review
Creation of liquid trading marketAble to create a liquid trading marketAble to create a liquid trading market
Liquidity for existing holdersCreates public market for exitCreates public market for exit
Ability to use equity to fund acquisition strategyAble to use public equity for acquisitionsAble to use public equity for acquisitions
Execution riskAbility to consummate IPO depends on market conditionsAbility to consummate sale to SPAC depends on non-exercise by SPAC stockholders of redemption rights and acceptance by public stockholders
Recourse for breachNot applicableGenerally no recourse for breach

As the chart above indicates, there can be significant advantages to structuring a public market exit for a portfolio company through a SPAC rather than a traditional IPO, including being able to customize the terms of the exit so that the selling sponsor can share in the founder shares and warrants received by the SPAC sponsor in connection with the formation of the SPAC and structuring the sale as an all cash deal or some combination of cash and stock. On the flip side, there is market risk in closing the SPAC transaction due to the redemption rights of the SPAC stockholders (although there is also market risk with an IPO obviously). The structure you choose will likely depend upon the nature of your portfolio company and your objectives.