Special Purpose Acquisition Companies (SPACs) - global and Indian context

Abstract

In recent years we have seen an increased interest among companies to go public. Last year in the United States, for instance, more than one thousand companies went public. While Initial Public Offering (IPO) remains a conventional route for a public listing, the IPO process is marred with substantial costs, procedural delays, and limited flexibility. Also, new-age startup companies which lack a profitable track record, find it difficult to list themselves through an IPO. Addressing these inefficiencies, in 2020, we saw the resurgence of an alternative route to fundraising and public listing called 'Special Purpose Acquisition Companies (SPACs).' A SPAC is essentially a blank-check corporation formed to raise funds through an IPO and subsequently merge with a privately held operating company, so such private company can go public. In effect, they de-risk and shorten the IPO process for their target companies, offering them a proposition better than a conventional IPO. Although SPACs have existed in various forms for decades, they have only recently gained popularity. In 2020 and 2021, more than 50% of the IPOs in the US were through the SPAC route, as indicated in the figure below. Figure 1 Source: Statista report on SPACs Indian companies, too, are eager to join the SPAC bandwagon. ReNew Power, an Indian renewable energy company, merged with a US SPAC 'RMG Acquisition Corporation II' in 2021 and got listed on the NASDAQ. StoneBridge Acquisition Corp, an India-focused SPAC, raised $200mn through IPO in the US and is primarily looking to acquire new-age Indian tech companies. Despite this increased interest, the Indian regulatory regime is lagging behind. In the absence of any enabling provisions, Indian SPACs are yet to see the light of day. India being the largest startup ecosystem in the world with more than 70,000 registered startups and 100+ unicorns, SPACs can potentially emerge as an attractive route for easy access to capital and global listing.