The growth in popularity of Special Purpose Acquisition Companies (SPACs) has been a pivotal shift in global capital markets, and nowhere more so than in the United States. Though SPACs have found a footing in various financial landscapes, the US market takes the lead in global SPAC activity. This article will delve into why the US market stands at the forefront for companies aiming for public listing through a SPAC.
Singapore, Hong Kong and the UK, for example, have only recently experienced an upswing in the SPAC scene. Singapore launched its SPAC framework only in September 2021, introducing various regulatory requirements and setting a precedent for future listings. The UK FCA followed tightly afterwards and introduced new regulations to make the market SPAC-friendlier in December 2021. Meanwhile, Hong Kong didn´t introduce new SPAC regulation until March 2022.
II Advantages of the US Market: a Bird’s Eye View
The key appeal of the US market lies in its size and liquidity. As the world’s largest and most liquid market, it houses more SPAC companies than any other region. This makes it an attractive destination for companies looking to raise capital, providing SPACs with greater access to capital and attracting a broader range of investors. In 2022, the US saw 86 SPAC IPOs. Although a noticeable decrease compared to the peaks of 2020 and 2021, the number reflects a stable long-term growth pattern. By comparison, the volume in Europe has remained relatively low throughout the years, not exceeding more than 9 SPAC IPOs in any given year.
The US stands tall with an impressive number of SPAC companies. Thanks to the regulatory ease, the U.S. Securities and Exchange Commission (SEC) allows a clear path for SPAC listings, with unambiguous guidelines for their formation and operation. This degree of clarity and openness contrasts with alternative markets such as Singapore and Hong Kong, with less regulatory clarity in the sector. For example, in Singapore, there have been only three SPAC listings, all listed in early 2022 after the new regulations were introduced. Hong Kong has seen a slightly quicker pace with less than 15 listings in total.
Listing on a US exchange also carries a certain prestige. The NYSE and Nasdaq, for instance, are the two largest stock exchanges in the world and home to some of the most well-known and successful companies in the world
III Unravelling the US Market: Flexibility and Openness
The US market distinguishes itself with its flexible and transparent regulations for the SPAC market. The exchange has the longest history of successful SPAC listings, and therefore a more developed infrastructure and investor community well-versed with the SPAC framework. Other markets have been slower to adapt their regulatory framework to accommodate the market. In the UK, for example, there are limitations on the extent SPAC´s can put their IPO proceeds to use, while Hong Kong imposes strict rules on the proportion of a company that can be acquired through a SPAC. The US, on the other hand, allows SPACs to merge with larger companies and apply IPO funds to general corporate purposes rather than limiting them to acquiring a target company. This flexibility gives companies room to invest in growth and expansion opportunities, providing more opportunities for companies looking to go public.
The U.S. Securities and Exchange Commission (SEC) provides clear guidance on SPAC transactions, which can increase investor confidence in the process and reduce the likelihood of legal or regulatory issues.
A. Minimum Size
The NASDAQ Global Market has not set any specific requirement on issue size, but past experience manifest that SPACs with a size exceeding US$75 million market cap are more likely to pass SEC review. By comparison, the minimum SPAC offering size in Singapore is required to be SG$150 million, equivalent to US$110 million. The Hong Kong exchange, on the other hand, specifies a minimum capital raising size of HKD 1 billion, equivalent to US$130 million.
B. Sponsor Qualifications
The U.S. exchanges do not set specific requirements for sponsors, instead relying on the market initiative. The success of a SPAC offering depends on the market’s trust in the sponsors and their ability to raise capital in the market.
Meanwhile, more factors are considered in Singapore’s stock exchange, where the regulator takes into consideration the resumes, track records, and reputations of the SPAC’s founding shareholders, as well as the experience and expertise of its management team.
A US listing provides access to more mature capital markets. U.S. stock exchanges such as the New York Stock Exchange (NYSE) and NASDAQ provide companies with access to a larger and more diverse investor base. As a result, companies listed in the U.S. tend to receive higher valuations than those listed on other exchanges.
C. Sophistication and Capability
A key strength of the US market is the SEC’s robust guidance on SPAC transactions, with the most flexible yet clear regulation for this type of listings, which can increase investor confidence and reduce the likelihood of legal or regulatory issues.
Although the U.S. has seen a decrease in SPAC listings since the peak years of 2020 and 2021, due to challenges in finding suitable M&A targets or the market’s perception of immature business acquisitions, a stable growth trend in SPAC transactions can be observed. Many markets are aiming to tap into this opportunity and are taking after the US stock exchange to create a more attractive market for SPACs. With new regulations on the drawing board across the world, from Hong Kong in Asia to the UK in Europe, many markets are expected to become more accommodating to SPACs. Still, we expect the US market to retain its leading position.
Finding the right SPAC is a complex process that requires a meticulous analysis and due diligence. Navigating the ever-evolving SPAC landscape may seem daunting, but the US market´s sophistication and maturity in the industry creates an unmatched market compared to the alternatives. As demonstrated, by offering a combination of liquidity, size, flexibility, capability and experience, the US stock exchange is expected to facilitate its position as the top choice for companies considering going public through a SPAC.
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