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SPAC OR PE EXIT DECISION RIDES ON EXECUTIVE'S LONG TERM PLANS

SPAC OR PE EXIT DECISION RIDES ON EXECUTIVE'S LONG TERM PLANS

Although SPAC acquisitions for taking companies public has been the major trend over the last year, the traditional buy-out method through a private equity (PE) firm still remains a strong option. It all comes down to what executive's have in mind for the company's long-term goals.

Partner Dan Jones noted there are definitive benefits to choosing the PE route, noting that PE firms are increasingly opting for long-term investments by consulting in-house expertise for strategies to increase valuations.The change in approach can help ensure the company’s growth and positive financial performance.

In addition, the PE route allows for executives of the acquired company to potentially retain control of the operations and pursue the established business strategy more readily. “[Avoiding] stock markets limits a company’s exposure to intense capital-market competition, enabling it to follow its strategic plans without the constant pressure to perform well financially to maintain its stock prices,” he said. 

In particular, it's an attractive option for small and mid-sized companies who would struggle to maintain the administrative and compliance burdens associated with a post-IPO presence. "The PE route is gaining popularity among such companies for funding of long- and short-term plans,” Jones said.

This isn't to say a PE exit is always the right answer. The deals are potentially less profitable and generally have a smaller pool of potential buyers.

If a company chooses to go the SPAC route, Jones said to understand that the leadership company may lose executive control and they must comply with the rules set by the SEC and other regulators. In addition, stock prices will be a constant factor for investors, so there is a very real pressure to perform well financially. “If a company’s valuation drops due to its poor financial performance, with SPACs there is a greater chance of knee-jerk reactions or changes,” Jones said.

 

Read the full article published by CFO Dive.

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