[vtantia]

Whenever you have some instrument attacking Wall Street (in this case, the IPO itself), papers come out trying to protect them. This does not mention drawbacks of the IPO the SPAC is getting rid of - the 6-7% investment banking fee, the hassle of doing several roadshows, the near 100% IPO pop due to which the company raises half of what it would have (amounting to a 50% fee so to say which goes into the pockets of institutional investors) amid other things. It is sad that critical reasoning is dead on HN. Nothing is ever purely good or purely bad. An impartial cost-benefit analysis needs to be done which is sadly impossible for someone whose funding comes from the deep pockets of Wall Street and institutional investors.

I have not even begun diving into the benefits of SPACs - some of which are the opportunity for audacious bets like Virgin Galactic holdings which Wall Street would assume to be a loss making company, benefits of PIPEs in SPACs (which would be the topic for a whole new post), the speed of going public.

[goat_whisperer]

>An impartial cost-benefit analysis needs to be done which is sadly impossible for someone whose funding comes from the deep pockets of Wall Street and institutional investors.

The link is to an academic paper that literally performs an impartial cost-benefit analysis of SPACs based on publicly available information, and concludes that the way SPACs are currently structured are a pretty crap deal apart from those who are able to get in early.

You mention underwriting fees, and the paper makes a big emphasis to emphasize the implicit costs of SPACs (i.e. all of the dilution) that people ignore.

Also, I'm not sure where the idea comes that SPACs are 'anti-wall street'. The sponsors and investors are some of the largest Wall Street Institutions out there (large Hedge Funds)

However, there are different ways of doing SPACs and the paper mentions a recent SPAC that gets rid of some of the excesses that end up screwing over the post-merger investors

[klipt]

I'm pretty sure "anti-wall street" is just the financial version of "doctors hate him", i.e. clickbait. Last week it was buying into the GME bubble that was marketed as "anti-wall street" and look how that turned out.

[dhnajsjdnd]

Wall Street underwriters are making tons of money on SPACs: https://www.wsj.com/articles/spacs-rescued-wall-street-from-...

[vtantia]

That is a good point but this is temporary. SPAC lords will reduce these margins soon enough. It is in their direct incentive to do so. This is a speculative assertion by me (one that I'm quite confident about), but I'm not sure one can be certain about the future

[neximo64]

As opposed to the 20% tax free, dilutive!! fee that goes to the SPAC sponsor for a finders fee

[vmception]

The market is telling you what you should be putting your time on and here you are in the comments section envisioning a fake controversy instead

[Lazare]

> Whenever you have some instrument attacking Wall Street [...] papers come out trying to protect them. This does not mention drawbacks of the IPO the SPAC is getting rid of - the 6-7% investment banking fee, [...] the near 100% IPO pop due to which the company raises half of what it would have (amounting to a 50% fee so to say which goes into the pockets of institutional investors) amid other things.

SPACs have hefty investment banking fees, and, frequently, their own enormous pop. In the case of Nikola, the SPAC sold shares for $10 that traded up to $34 on the first day of trading, a 240% pop, and many other recent SPACs have had large pops. Every effort I've seen to evaluate the costs of SPACs has found them to be at least as expensive as IPOs. How could they not be? SPACs have to do their own IPO just to get started (with hefty fees), then they conduct a merger (with hefty fees), then there may be the sponsor promote, then there's the widely documented fact that most of the cash raised is returned to investors via redeptions, etc.

> An impartial cost-benefit analysis needs to be done which is sadly impossible for someone whose funding comes from the deep pockets of Wall Street

You literally wrote that in a comment on a paper doing an impartial cost-benefit analysis which was not funded by Wall Street.

Whatever advantages SPACs have, or may have in the future, the ones happening today are very expensive.

[totalZero]

An IPO pop is considered favorable versus the converse. You don't sell the whole company, so you still make money on the non-offered shares and you get an optically desirable price bump that can contribute to further positivity about the stock.

Affirm priced around $12B (but now trades over $25B), yet they only raised about 10% of that. So yeah they left some money on the table but who's to say the stock would have generated such a pop if the IPO had priced higher?

There's a lot of virtue in being long-term greedy, and sometimes that means leaving money on the table.

[jartelt]

The fees and dilution companies take on when doing a SPAC are typically higher than if they had done an IPO. SPACs also can and often do pop up just like IPOs.

When you go with a SPAC you are basically paying more fees in exchange for a faster route to go public and more price certainty. In most cases high flying companies with great numbers are better off doing a direct listing or IPO than a SPAC.

[cinntaile]

If you have better or different sources explaining how SPACs work and what their effects are I am all ears.

[supercanuck]

> It is sad that critical reasoning is dead on HN

What?

> An impartial cost-benefit analysis needs to be done

>I have not even begun

>… Wall Street would assume

It would seem irony is not dead.

[vtantia]

Look at the comments below which mention 1 bullet point and do not look holistically at the problem and the solution. I have been finding this to be the case on a lot of HN comments recently

I do not claim to be making an impartial analysis myself. Just putting out some points which have been omitted by the Wall Street-funded academic paper

[andylei]

> by the Wall Street-funded academic paper

citation needed

[vtantia]

Good point. Unfortunately, I couldn't find where their funding comes from from a quick cursory search (and I don't just mean the funding for graduate students, or salaries). If anyone could provide details about this, I would much appreciate it