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THE SPAC BOOM: WHY COMPANIES AND INVESTORS ARE INCREASINGLY LOOKING TOWARDS SPAC IPOs

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Maxim Manturov, Head of Investment Research at Freedom Finance Europe

Special purpose acquisition companies (SPACs) have long been part of the investment landscape, but this market has boomed in recent years. As well-known underwriters and investors show increased interest in the initial publication offerings (IPOs) of blank-check companies, SPACs have been pushed to the forefront of the agenda and there is even discussion around whether these will outpace the traditional IPO. Essentially, SPACs have become a very viable alternative for many private companies.

The SPAC boom is best exemplified by recent research from Refinitiv, which found that

SPACs have raised $79.4bn globally since the start of the year, eclipsing the $79.3bn that flooded into investment vehicles in 2020.[1] In fact, some studies report that SPACs accounted for a record 30% of all industry IPO earnings in 2020 and is already accounting for 54% in 2021, up from 1% in 2014.[2] The SPAC frenzy that commenced in 2020 therefore shows no signs of slowing, with 2021 set to be a record year for SPAC listings.

In light of this, with a long list of SPACs having filed for an IPO in 2021, it is imperative for companies and investors with growing appetites for participation to take a closer look before coming to a decision. So, let’s dive deeper into the rising popularity of SPAC transactions, the traditional IPO vs. the SPAC IPO and the future outlook for the thriving market.

The rising popularity of SPAC transactions

SPACs are non-commercial companies created solely to raise capital through an IPO in order to acquire an existing private company, thus bringing that company to the market. While SPACs have been around for quite some time –entering the investment landscape back in the 1990s– it is only recently they have exploded in popularity, as better-known underwriters and investors started taking part in them. This trend will likely grow as major private equity firms and venture funds continue to form more SPACs.

The reasons behind the rising popularity of SPAC transactions include low interest rates, simplified listing requirements, increased investor participation and the quantitative easing policies that are still adopted by most central banks. SPACs are also a great way to get exchange-listed during increased market volatility, as well as enable existing companies to gain access to liquidity that would not otherwise be available.

Ultimately, there are a range of factors that make SPACs a more sustainable option for raising funds, hence why target companies are increasingly looking towards SPAC IPOs to take them public. These factors, combined with the increasing number of high-profile sponsors entering the SPAC space, have enabled this market to soar. But will SPAC IPOs really outpace traditional IPOs this year?

The traditional IPO vs. the SPAC IPO

Traditional IPOs and SPAC IPOs are both subject to the same set of rules when taking a company public. When delving deeper into the benefits of these investment vehicles, however, there are notable differences. Compared to a traditional IPO, SPAC IPOs offer more certainty regarding the company value and fundraising, since the valuation is fixed through a privately concluded merger.

Alongside this, raising funds through SPAC transactions is one of the quickest ways for private companies who are in urgent need of capital. Getting ready for a regular IPO requires time, from a few months to a year, whereas creating a SPAC can be completed in just three short weeks. The benefits of this pace have been recognised none more so than amongst the ongoing pandemic, hence why investments in SPACs continue to surge.

One potential shortfall to point out, though, is the ability of SPAC IPOs to acquire a private company in the allotted timeframe. Once a blank-check company lists its security information on an exchange, it must complete a merger within three years or risks falling through, which creates added risk for buyers looking to invest.

In a nutshell, while SPAC IPOs can provide greater flexibility, efficiency and speed for target companies, they cannot wholly replace the reliability of traditional IPOs. Companies looking to go public must therefore weigh up the pros and cons of each option in line with their individual goals and capabilities.

The future of the SPAC market

That being said, many experts still believe that SPACs’ popularity will continue to grow in coming years as companies look to raise capital quickly and investors look to actively participate in this craze. This is demonstrated by initial stock market listings in 2021, which witnessed one of the best starts to the year since 2008, thereby highlighting that active participation in SPACs is undoubtedly growing. On top of this, with low interest rates and savings on commuting, food and coffee costs, COVID-19 has triggered an increased interest in investing amongst younger buyers.

But with so many SPAC options on the table, which ones are actually worth investing in?

  • Stable Road Acquisition Corp – Expected to merger with Momentus. Momentus is a pioneer in space transportation and infrastructure technology and is at the forefront of space commercialisation. With an experienced team of aerospace, propulsion, and robotics engineers, Momentus developed a cost-effective and energy-efficient space transportation system based on a water-plasma propulsion technology.
  • Social Capital Hedosophia Holdings Corp. V – Expected to merger with SoFi, a leading next gen financial service platform. SoFi’s mission is to help people achieve financial independence by taking correct money management decisions. This is a one-stop member-focused financial service hub that includes loan refinancing, mortgages, personal loans, credit cards, insurance, and investment and deposit accounts, with over 1.8 million users.
  • Property Solutions Acquisition Corp – Expected to merger with Faraday Future.  Faraday Future is a global smart mobile ecosystem company, the mission of which is to change the aspects of digital life when it comes to cars. The company already has a powerful portfolio of revolutionary value-added technologies, protected by nearly 900 patents worldwide.

The future for SPAC transactions is therefore likely to be bright as private companies increasingly look towards SPAC IPOs as a viable option to go public. With a growing number of players entering the SPAC space, the SPAC frenzy is only gathering pace.


[1] https://www.ft.com/content/321400c1-9c4d-40ac-b464-3a64c1c4ca80

[2] https://seekingalpha.com/news/3656255-piper-sandler-spacs-look-bubble-like-but-may-boost-goldman-sachs-and-evercore

Business

TOP TIPS FOR BOOSTING YOUR CASH FLOW AND BUSINESS IN 2021

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By

Ian Gass, CEO at Agitate

 

Many small businesses are still dealing with the disruption caused by the pandemic. Improving financial performance is most likely to be at the top of agenda, and a good place to start is reviewing cash flow. No matter what the product or services a company provides or the size of the business, cash flow still remains king.

Research has shown that 38% of small business owners who have suffered cash flow problems have been left unable to pay debts. With 1 in 7 small business owners having been left unable to pay employees because of cash flow issues, this equates to a huge 2.2 million people in the UK not being paid on time.

 

The importance of positive cash flow

Profit has traditionally been seen as the most important measure of an organisation’s financial performance. However, the focus is increasingly shifting from the income statement to the balance of cash inflows and outflows. Prioritising profit levels reflect long term fiscal health, but it does not necessarily mean that a business can pay its bills on time and survive in the short term.

Ian Gass

Sudden drops in demand prove how keeping an efficient cash flow balance is essential, and can expose shortcomings of currently used solutions. When reviewing your cash flow, you need to look at ways to get more money coming in and better manage the money that is going out. Here are a few ways to improve cash flow management and see positive changes in a short period of time.

 

  1. Efficient forecast

It is important to be able to compare actual income and expenses with those that are in the pipeline, as it helps to determine which area of business is under performing or generating unnecessary costs. Start by looking at your projected income and expenses for the next three months, don’t wait until you receive a bill to realise there are not enough funds to cover it. An easy way to overcome this issue is a free cash flow template available online.

 

  1. Terms and Conditions review

Making sure that T&Cs are clear and comprehensive not only provides your business with a protective layer, but also makes customers understand when and how the payment is expected, and the process and penalties for late payments. That’s why regular checks and reviews of existing agreements prevents businesses from potential loses. It is also good to use reward tactics to encourage customers for prompt or early payment such as discounts or free shipping.

 

  1. Payment terms

Payment terms that are understandable and realistic is clear T&Cs in place. As it creates a contract with suppliers and obliges the organisation to pay on time, it is important to match these terms wider operation processes. For instance, if you have 14 days to pay your suppliers, but your customers get 30 days to pay you, a problem of late payments will be inevitable. To avoid damaging relationships with suppliers, you should consider an extension of the terms or reducing the credit period for your clients. It is worth taking deposits, asking for payment in advance or on receipt.

 

  1. Invoice management

Another method that can quicky improve cash flow is sending invoices promptly and ensuring they are accurate. Any mistakes will simply require queries to be resolved and it will take longer to receive payment. In addition, it is important to remain persistent at following up late payments and moving the money to the bank as soon as possible. Some clients will always need chasing and, without a follow up, they will hold on to the cash as long as possible.

 

  1. Payment options

Making it easy for clients to pay gives businesses the best chances of being paid quicker. While accepting card payments might be common place, there is a high risk of fraud. For example, in 2019 £620.6m was lost in card fraud in the UK. Also, it can be expensive to process and often leaves an organisation to wait days to receive the funds. Using a free bank-to-bank payment app means businesses can send payment requests from mobile phone straight to customers via email or messaging app (such as WhatsApp).

In that case, the consumer will receive a message with all the information they need to make the payment instantly. They click the secure ‘Paylink’, which directs them to their online banking app and all the relevant information is displayed such as your name, the amount to be paid and a reference. The transaction needs then authorising with their bank and the money moves instantly from their account to yours.

 

  1. Cost reduction

If there is too much money going out that a company can’t afford, business owners need to think of ways to reduce those expenses. There are a few questions to help understand where money can easily be dislocated:

Is there software or equipment that you are paying for that you don’t use? Can overhead costs such as utilities and administrative expenses be reduced? Are card transaction fees putting an unnecessary pressure on cash balance? If so, it can be eliminated with a bank-to-bank payment app.

Although profit might be seen as the ultimate goal for companies of all shapes and sizes, sustaining positive cash flow provides vital foundations on which a company can grow. By using the right tools, business owners can not only get paid faster and more securely, but also improve customer experience, reducing the transaction to a quick QR scan. Making a few smart changes to the existing balance sheet can have a big impact and future-proof an organisation in no time.

 

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Business

BRIDGING THE DIGITAL EMPLOYEE EXPERIENCE GAP

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By

Matthew Sturman, senior technical consultant, AppLearn

 

While the financial sector was arguably some way along the digital transformation curve before the pandemic, embracing innovative solutions to enhance customer experience and security, the last 12 months have required a step change like no other for employees.

Overnight, teams were operating remotely, using an array of new business applications from communications tools to support systems. Business critical processes which may have been stagnant for some time due to a risk adverse culture, quickly evolved with a need for greater agility.

In a post-pandemic world, it’s crucial that financial leaders don’t become complacent about the employee experience; KMPG put employees at the top of their list for financial institutions six considerations in dealing with the impact of COVID-19. Organisations have rapidly undergone transformation to facilitate home working while maintaining operations, however the proliferation of technology has also highlighted a critical digital employee experience gap. Addressing this will be key to embedding digital strategies which enable and support employees in the long-term.

 

Matthew Sturman

The overwhelmed employee

Even before the pandemic, research from Okta detailed how the number of worker applications deployed by organisations had increased by 68% over the past four years.

You only need to look at how employees access IT support to realise just how complex this picture has got for employees. Every technology application – from risk and complicance to payroll software– has a different route to access support, with employees having to navigate chatbots, online knowledge bases, resource hubs or the helpdesk. The result? Context-switching. Time spent flitting between different applications or windows to complete tasks, taking employees out of the flow of work. Studies have shown that switching contexts has a dramatic impact on time lost mentally re-focussing between tasks, in addition to time wasted navigating to try and find support.

In fact, research from McKinsey has found that workers spend up to 20% of their working week searching for information or support on tasks. This issue has only been compounded further with employees working from home, and not knowing where to go for timely support.

 

Prioritising the user

Over time, these small interruptions can add up to a significant impact on an organisation’s performance – and lead to user frustration, as well as decreased motivation amongst employees.

Historically, financial services businesses have taken a customer-first approach to investing in user experience – prioritising external customer service and communication over the internal employee experience. However, most employees are also users of this technology, and expect the same smooth transitions and consumer grade experience when using their work devices or software. When their digital experience is seamless, employees can focus on their role without interruption.

In a recent report, KPMG said organisations should create an ecosystem of tools and technologies that work together to enable experiences that help people work better. Any shifts in technologies should consider the combined impact of features and integration. It’s this sentiment financial leaders must embrace to truly empower digital workers.

 

Bridging the employee experience gap

According to a recent report from analyst firm Constellation Research which looked at the impact on the pandemic on the digital workplace, organisations have a historic opportunity to transform the employee experience.

It encourages organisations to adopt an ‘employee experience platform’ (EXP) model that connects disparate digital tools into a more cohesive digital workplace. This model is made up of disruptive technologies that bring together siloed applications and software.

Technologies such as digital adoption platforms (DAPs), machine learning, ‘people analytics’ tools and on-demand talent sourcing have been highlighted by Constellation as key components to the EXP. DAPs, for example, help solve the issue of disparate IT estates by overlaying software applications and providing a consistent support experience across multiple applications. This can take the form of step-by-step guides to navigate the user through new digital tasks and workflows, through to ensuring knowledge articles and chatbots are seamlessly available when required and provided in context of the individual requiring it and the task they are performing. Crucially, this keeps employees in the flow of work and avoids wasted time switching between applications and searching for support.

 

Looking ahead

It’s been an immense year of change for financial leaders, organisations, and importantly employees. As we move out of the pandemic, getting this next phase right will be absolutely key. For many businesses, this will be about moving from survival to thriving in a digital world.

The steps are simple. Identify the experience gaps, explore disruptive tools and technologies that bridge them, but most importantly, create an employee experience that enables and empowers them to do their job better.

 

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