IPOs Are Back in a Big Way This Year. Should You Invest?
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While many private companies refrained from going public in the last couple of years due to a short-lived bear market and high interest rates, IPOs are coming back in a big way.
A cohort of recognizable companies have gone public or plan to in 2024, presenting investors with an opportunity to profit on newly listed stocks. But this time, special purpose acquisition companies, or SPACs, won't be coming along for the ride — at least not in their previous form.
SPAC mergers, one special type of IPO, were a reckonable force on Wall Street at the start of the decade. These public listings take place by merging private companies with SPACs, a type of publicly-listed shell company — a term for a corporation without significant business operations or assets that's formed to secure financing. The private (or target) company then becomes public by assuming the ticker symbol held by the SPAC.
These mergers became popular among companies that wanted to go public quickly, as SPAC mergers are faster than traditional IPOs or direct listings. They also became popular with investors because an SPAC that could find a particularly attractive private company to merge with could produce sizable profits. If that company failed, investors would receive their investment back. So, in the early 2020s as the number of retail traders grew, so too did the number of SPACs seeking private corporations to take public.
However, as IPOs are seeing a resurgence this year, SPAC deals are likely to fall into obscurity thanks to a string of recent failures and regulatory policies.
What is an IPO?
