For those of you curious about how SPACs compare to other methods of "going public", I highly recommend this article by @bgurley https://abovethecrowd.com/2020/08/23/going-public-circa-2020-door-3-the-spac/

In a past-life, I worked on a buy-side investment grade trading desk. In this world, there are "new issues" basically every single day.

Unlike equity markets, where a company can only "go public" once (exceptions notwithstanding), companies issue new debt all the time.

Every time they do, the investment bank hit the phones and drum up interest for the new deal. This is where, in my opinion, the problem starts (and it's a similar problem to the one Bill explains for equity markets).

Orders are placed at the initial price talk, or "IPT". IPT is usually 20+ basis points in spread terms behind the companies existing bonds of comparable maturity (remember, these deals come often and there are typically very similar securities already trading).

At those levels, you would buy a lot of bonds... who wouldn't? So you put in an order for significantly more bonds than you would practically want at the "fair" market price for the bonds, aka where comparable bonds from the company currently trade.

Order books typically end up WAY oversubscribed, the banks will "tighten" the proposed spread from IPT and check back to see if you still want to participate at the new price.

Then the banks say "Ok, great, let's just decide who gets how many bonds based on, I dunno, some factors" (some, but not much, cynicism here).

The deal will print, bonds are allocated, and (typically) the new issue will trade a bit tighter (akin to higher, for a stock).

The outcome in fixed income is less-bad, IMO, than in equities, for a few reasons but most notably because if we saw the same "pops" we see in equity all the time, the companies issuing bonds wouldn't use that bank ever again because they could have borrowed at better rates.

But when you're doing an IPO... you only get one shot, and I can only imagine how frustrating it is as a company executive so sell X% of your company to institutional managers for materially lower than market prices.

What bugs me most about the whole thing isn't so much the outcome, it's the process. As Bill highlights - we have the technology to do this better.

We don't need humans to say "let's give these guys a little more, we like them".

We just need everyone to submit a list of quantities and prices. I.e. "we would by X shares at Y price" for a series of prices. It really would be that easy.

TL:DR

IPO process is broken,
Proliferation of SPACs is a symptom,
The same process exists in fixed income.

(not investment advice)

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