Initial public offerings are grabbing the spotlight, with today's launch of Airbnb (ABNB 1.17%) being just the latest in a spree of high-priced IPOs getting huge first-day run-ups. Yet the fact that ordinary investors have to pay as much as double what privileged clients of Wall Street institutions are charged for shares of hot IPOs has grabbed everyone's attention. Some companies are doing something about it, and increasingly, regular investors are paying attention.
As of 1 p.m. EST, the Dow Jones Industrial Average (^DJI -0.11%) was down 27 points to 30,042, and the S&P 500 (^GSPC 0.02%) was unchanged even as the Nasdaq Composite (^IXIC 0.10%) picked up 55 points to 12,395.
However, several stocks that offer an alternative to regular IPOs got rewarded Thursday. Let's take a look at these winners and why they're doing well.
Image source: Getty Images.
Shining like silver
The big winner in the IPO-alternative space Thursday afternoon was Silver Spike Acquisition (SSPK). The stock jumped more than 33%.
Silver Spike is a special-purpose acquisition company, or SPAC for short. SPACs are designed to find privately held companies and take them public through a merger transaction. In this case, Silver Spike was set up to look for investments in the plant-based and alternative health and wellness space, raising $250 million to explore opportunities in industries like cannabis.
On Thursday, Silver Spike found its match, announcing a merger with WM Holding Company. WM is the corporate entity behind the popular online cannabis listing service Weedmaps. It also has a software-as-a-service subscription platform for marijuana retailers and brand-name growers. The deal will price WM at about $1.5 billion, with SPAC investors receiving roughly one-sixth of the shares and institutional investors pitching in an extra $325 million.
If Weedmaps had decided to do a conventional IPO, then you could speculate on the likely trajectory of the stock price. An initial range of $10 to $12 per share might have jumped to price around $15, only to see first-day demand lift it to $25 or $30 per share. For Silver Spike, you could've bought shares yesterday for just $10.50 -- and even now that you know the merger target, a price under $14 per share might well be a bargain compared to what a regular IPO would've cost you.
SPAC demand is soaring
The lesson is one that investors seem to be learning quite well. Other SPACs saw big moves higher today, including the following:
- Live Oak Acquisition (LOAK) jumped more than 6%, bringing its gain over the past three months to more than 50%. The SPAC took just five months to find biotech company Danimer Scientific, a pioneer in biodegradable and compostable bioplastics. SPAC investors are excited about Danimer's progress in promoting more environmentally friendly products in packaging.
- Hennessy Capital Acquisition IV (HCAC) rose 8% on continuing excitement about its pending merger with electric vehicle and skateboard company Canoo Holdings. A special meeting to approve the merger is scheduled for Dec. 21.
- Flying Eagle Acquisition (FEAC) also climbed 8%. The SPAC is set to merge with mobile game platform company Skillz, and shareholders are anxiously awaiting notice of closing.
Increasingly, privately held companies are deciding that they like the process of merging through a SPAC to go public rather than using a conventional IPO. Once seen as sketchy, SPACs have gotten a better reputation, and high-profile wins have made the going-public strategy a solid alternative.
As long as stock markets perform well, there'll be room for new privately held companies to come public. You can expect more of them to avoid regular IPOs in favor of SPACs.