SPAC: Why many unicorns won't hop on the SPAC wagon

2020 has certainly been the year of blank check acquisition companies - or SPACs. 

• That's how Nikola- the sexy electric truck shop-, Utz - the iconic snacks company- and Virgin Galactic went public earlier in the year.
• Plus, it's also how electric vehicle makers Fisker, Canoo, and Lordstown Motors announced they will go public.
• Plus Plus, famous investor Bill Ackman recently took his SPAC (Pershing Square Tontine) public in the largest-ever blank-check IPO (it raised A whopping $4B). The objective is to buy a mature unicorn. Ackman actually said Pershing might buy a “mature unicorn” 6 times in the filing.

However not all private companies are psyched about merging with SPACs to go public. Airbnb reportedly turned down an offer to merge with Bill Ackman's SPAC, saying it prefers going public via traditional. Airbnb isn't alone. Snowflake, Slack, Shopify and BigCommerce are other flashy SPACs that declined the backdoor to going public and opted for the front door through an IPO or direct listing.

Why many unicorns will avoid SPACs deals to go public

There are risks associated with SPACs that will probably keep most major unicorns from going public via a blank check deal.

• First, there's the issue of time sensitivity. Once a SPAC goes public, it typically has 24 months to buy a company something or it must dissolve. Many private companies may want to stay private for longer and not get rushed into a deal.
• Second, there's the issue with liquidity. A SPAC might not be the best path to raise the most capital. With an IPO, the company does roadshows and pitches its value proposition to multiple investors. This increases the amount of capital that it's likely to raise. In addition, companies looking to go public with a SPAC typically need to get significant backing from larger investors through a so-called private investment in public equity deal, or PIPE. These deals often come at a discount. Less capital means less liquidity which could be an issue. 
• But the biggest issue with SPAC deals to go public is less fame and attention. Big Unicorns can gain more fame/publicity and capture more investor attention by going public through traditional means. They will also have the backing of big Wall Street investment banks that will pitch them to major money managers. Going public is a fundraising round and unicorns will want to use it to strengthen their brands and gain notoriety with investors. After all, unicorns are competing with other large public companies and an IPO or direct listing  gives their customers, partners and investors more assurance that they will be around for a long time. 

What do you think will elevate a company's brand and resonate better with its customers and partners: going public by merging with Gores Metropoulos (I know, it sounds like a Russian hotel - it's actually the SPAC that self-driving startup Luminar merged with), or getting listed with the company's own name and ticker? I think it's the latter for sure. 

Bottom line, there probably isn't a place for SPACs with the top unicorns unless they desperately need funding. Top unicorns will want to go public through the front door. They will want to use this opportunity to grow their brand, not tarnish their reputation. SPAC deals to go public are still viewed by many with derision. This is especially the case given the recent allegations about Nikola. If these allegations hold, they will cast a pall over SPAC deals and investors will be much less likely to trust future SPACs. Most importantly, investors will not trust the companies that use SPACs to go public. Unicorns don't ever want to be seen as shady, especially when going public because that's when they are looking for long term investors and partners to help them fuel growth.

Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.