Are SPACs coming to the ASX 200?

Are Special Purpose Acquisition Vehicles (SPACs) coming to the ASX? A new report says the ASX is under pressure to consider SPACs down under.

| More on:
A boy with question mark on his forehead looking up as if watching an ASX share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Anyone who has an interest in the US share market, and in US growth shares, in particular, is probably familiar with the concept of a SPAC (Special Purpose Acquisition Vehicle) company.

SPACs have been growing in popularity over the past year or two. They have also been singled out as a symptom of what some investors call an overheating market.

So what exactly is a SPAC, and are they coming to the ASX?

A SPACtacular idea?

A SPAC is a way that an unlisted company can join the share market. Think of a SPAC as an alternative to an initial public offering (IPO).

However, unlike an IPO, which involves the unilateral listing of a new company's shares, SPACs operate a little differently. They involve a shell company, that exists only for the purposes of the SPAC.

If all parties agree, this shell company merges with an unlisted private company in order to form a new company on the share market. Many speculative investors like to hunt for these shell companies before an official announcement is made.

That's because a SPAC has very little value before an announced merger. And potentially a lot once the merger is announced.

Some famous examples of companies that have listed using a SPAC include Nikola Corporation (NASDAQ: NKLA) and Draftkings Inc (NASDAQ: DKNG).

SPAC that, right on the ASX floor?

At least until now, SPACs have been an American phenomenon. But it might be about to be coming to a whole lot closer to home for Aussie investors. According to reporting in the Australian Financial Review (AFR) today, the ASX is facing a growing chorus of supporters clamouring for SPACs to be allowed on our own ASX.

Especially given that some companies that might have listed on the ASX could instead look to the US for a SPAC merger.

The AFR reports that Ian Taylor, head of equity capital markets at Goldman Sachs in Sydney, is one such voice. He told the AFR that they can be an efficient and useful way for companies to join a share market.

"There are real uncovered gems at very large sizes… the SPAC structure is evolving for the better and I do think that fears of a bubble are overdone," he told the AFR.

However, the ASX will certainly be wary of the frothiness the whole SPAC space has seen in recent times. The AFR report also states that SPACs raised US$78 billion from investors in 2020, but has already raised another US$72 billion in the 2½ months of 2021 so far.

The US Securities and Exchange Commission (SEC) was reportedly forced to issue an alert to retail investors last week. It warned them that celebrity like Jay-Z backing a SPAC is not a reason to invest. Not exactly a problem the ASX would want, you would think.

The ASX is reportedly considering the idea. The AFR tells us that the ASX has stated that, "we will listen to the market and take a cautious approach".

That doesn't sound like a ringing endorsement of the whole process, but this is certainly an interesting space to watch!

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A woman with a mobile phone in her hand looks sceptical with a puzzled expression on her face with an eyebrow raised and pursed lips.
Broker Notes

Buy these 3 ASX consumer stocks in the dip: expert

Can you guess which 2 were named?

Read more »

A male ASX 200 broker wearing a blue shirt and black tie holds one hand to his chin with the other arm crossed across his body as he watches stock prices on a digital screen while deep in thought
Share Market News

5 things to watch on the ASX 200 on Wednesday

Here's what to expect on the local share market today.

Read more »

Miner puts thumbs up in front of gold mine quarry
Gold

Why Macquarie expects this ASX 200 gold stock to surge 55%

Macquarie forecasts a big rebound ahead for this beaten down ASX 200 gold miner.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Share Market News

Aussie investors increase ASX shares and sell investment properties

More Australian investors are receiving dividend income each year, new tax data shows.

Read more »

Ten smiling business people wave to the camera after receiving some winning company news.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a nervous, but positive, Tuesday for ASX investors.

Read more »

A susccesful person kicks back and relaxes on a comfy chair
Best Shares

If I could only buy and hold a single ASX share forever, it would be this one

There are two reasons why this stock is my first choice...

Read more »

young woman reviewing financial reports at desk with multiple computer screens
Opinions

Brokers' verdict on 4 popular ASX 200 financial stocks

Financials outperformed every other sector in FY25. What should you do now with these 4 stocks?

Read more »

two colleagues high five each other as they sit side by side at a long desk in front of their laptop computers in an office environment.
Share Gainers

Why Bapcor, Ramelius, Sandfire, and WIA Gold shares are rising today

These shares are having a better day than most on Tuesday. But why?

Read more »