Hi-tech: Rumors of the SPAC's death were premature

The slowdown in high-tech investments has also greatly moderated the SPAC market, which experienced two years of boom until 2022. In such a situation - and precisely now - golden opportunities for investing through SPAC are born that a year ago could only be dreamed of

Walla!

Of money

09/20/2022

Tuesday, September 20, 2022, 09:39

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In 2022, the high-tech market was revealed as a roller coaster that runs without brakes.

After new records of IPOs and mergers in 2021, the air began to come out of the bubble: the Nasdaq turned its back on many technology companies that until then sold dreams to investors for huge sums, and the investment funds also suddenly discovered the possibility of turning off the tap.

It so happened that many start-up companies find themselves facing a significant difficulty in raising funds.

One of the particularly prominent consequences of this trend is a significant decrease in the use of SPAC (Special-purpose acquisition company, and in Hebrew 'purchase company for special purposes'), the same practice in which American stock exchange skeletons are used to 'take over' companies and thus actually invest significant amounts in them most.

This is how the stock exchange skeleton turns the acquired private company into a public one, and all this without the company having to conduct an initial public offering (IPO) with all that implies, including the preparation of the prospectus, due diligence, etc.

For the most part, the SPAC model works as follows: entrepreneurs establish a stock exchange skeleton or take over an existing skeleton, and perform an initial public offering even before they find the company they want to merge with.

This is how the SPAC company raises the necessary capital from investors, while promising to find a suitable company to merge with within 18 or 24 months.

If the merger is not carried out, the money is returned to the investors.

During this period, the entrepreneurs look for a private company to invest in and design the terms of the investment.

spac (Photo: ShutterStock)

During the year 2020, and especially in 2021, the SPAC market blossomed to enormous proportions - about 80 billion dollars a year were raised through this model;

However, it began to fade with the beginning of the slowdown in the market and the tightening of the conditions of the American Securities Authority (SEC), which noticed that many of the mergers faded away soon after they were realized, and the merged companies lost tens of percentages.

To this it should be added that with the slowdown in the market and the hardening of the SEC's position, many investors refused merger proposals in quite a few cases, in accordance with the right granted to them as shareholders in the skeleton company in which they serve as shareholders.

As a result, some believe that the golden age of the SPAC has passed, and that now the market is only looking for proven companies that bring in as much money as possible already today.

Or in simple words: illusions and technological bubbles - OUT;

A traditional and proven industry - IN.

But the truth is, the opportunity still exists for those who know how to seize it.

According to attorney Michael Devorin, who represents in Israel 3 such skeletons that raised between $150 million and $350 million, this is still a real opportunity for good companies that want to go out into the big world. But at the same time, a new opportunity has opened up for traditional international companies that the market once did not like to look at."

Israel's reputation on Wall Street plays in favor of the companies.

Attorney Michael Deborin (Photo: Roy Shafernik)

Deborin explains that "if it is a solid company that sells services or products internationally and brings in hundreds of millions of dollars, the opportunity of the merger with the SPAC is a great opportunity precisely in the current state of things. On the contrary, it also increases the chance that the investors will approve the merger, as long as it is indeed proven that the target company is not A company that only sells potential and future dreams, but a growing, well-known company that only has the potential to increase its activity more and more."

Devorin also believes that the Israeli market is of particular interest to the skeletons he represents, "thanks to the excellent reputation that Israeli companies still enjoy on Wall Street. This is a surreal world: a Bourse skeleton with $340 million in cash locked up in it needs to convince a Matra company from Yokneam or Be'er Sheva that the merger into NASDAQ "K will be good for it - while in practice this is a rare golden opportunity for the target company itself which is not certain to return a second time, to take advantage of the pressure that the stock exchange skeletons themselves are under due to the time limits that apply to them due to the need to announce a merger by a certain date."

Therefore, Adv. Deborin remains optimistic. "In the last few weeks we have scanned the Israeli market and found quite a few companies that have a huge potential to be a target company for the various skeletons we represent," he says. "With one company we are already progressing to a letter of intent and due diligence and I hope that in the coming weeks we will be able to move forward with additional companies as well," Devorin revealed, and concluded: "This is a real opportunity for the right companies."

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