Case 106 / 183 Associate

SPAC vs. Traditional IPO

Capital Markets — ECM/DCM

The prompt

“As an associate advising the board of a private industrial-technology company, you are tasked with comparing a traditional IPO against a de-SPAC merger: quantify how much cash each route actually delivers to the company, how much of the business existing shareholders keep, and what each route truly costs once the IPO discount and the sponsor promote are counted.”

📋 What you're given

As an associate advising the board of a private industrial-technology company, you are tasked with comparing a traditional IPO against a de-SPAC merger: quantify how much cash each route actually delivers to the company, how much of the business existing shareholders keep, and what each route truly costs once the IPO discount and the sponsor promote are counted.

1. Task Overview

Task: Determine which of the two listing routes leaves the existing shareholders of NordVolt Systems better off, and be able to explain what drives the difference.

Step 1: Given Data — NordVolt Systems and the Two Listing Routes

NordVolt Systems is a privately held industrial-technology group that needs roughly $200m of primary capital together with a public listing, and both a traditional IPO and a de-SPAC merger are on the table.

Line ItemValue
Pre-money equity value (standalone)$800.0m
Existing shares outstanding80.0m
Route A — Traditional IPO
Primary shares offered25.0m
IPO discount to fair value15% (0.15)
Underwriting fee (gross spread)6.0% (0.06) of gross proceeds
Other offering costs (legal, audit, listing)$6.25m
Route B — De-SPAC Merger
SPAC trust size$230.0m
SPAC public shares23.0m at $10.00
Sponsor founder shares (promote)5.75m
Redemption rate at the shareholder vote85% (0.85)
PIPE proceeds$150.0m at $10.00
Deferred underwriting fee3.5% (0.035) of trust size
Other transaction costs (advisory, legal, D&O)$16.95m
Rollover shares issued to existing holders80.0m

Step 2: IPO Route — Offer Price and Net Primary Proceeds

Show Net IPO Proceeds Formula

Fair Value per Share = Pre-Money Equity Value / Existing Shares

Offer Price = Fair Value per Share × (1 - IPO Discount)

Gross Proceeds = Primary Shares Offered × Offer Price

Net Proceeds = Gross Proceeds - Underwriting Fee - Other Offering Costs

Using these formulas, compute the offer price, the gross proceeds and the net primary proceeds of the IPO route.

Step 3: IPO Route — Pro-Forma Share Count and Value per Share

Show Pro-Forma Value per Share Formula

Pro-Forma Shares = Existing Shares + Primary Shares Offered

Post-Money Equity Value = Pre-Money Equity Value + Net Proceeds

Value per Share = Post-Money Equity Value / Pro-Forma Shares

Using these formulas, compute the pro-forma share count, the post-money equity value and the resulting value per share under the IPO route, then state what percentage of the company existing holders retain.

Step 4: De-SPAC Route — Cash Actually Delivered

Show Net De-SPAC Cash Formula

Trust Cash Retained = Trust Size × (1 - Redemption Rate)

Transaction Costs = Deferred Underwriting Fee + Other Transaction Costs

Net Cash to Company = Trust Cash Retained + PIPE Proceeds - Transaction Costs

Using these formulas, compute how much cash the de-SPAC route actually delivers to NordVolt Systems.

Step 5: De-SPAC Route — Pro-Forma Share Count and Value per Share

Show De-SPAC Pro-Forma Share Count Formula

Public Shares Retained = SPAC Public Shares × (1 - Redemption Rate)

Pro-Forma Shares = Rollover Shares + Public Shares Retained + Sponsor Founder Shares + PIPE Shares

Value per Share = (Pre-Money Equity Value + Net Cash to Company) / Pro-Forma Shares

Using these formulas, compute the pro-forma share count and the value per share under the de-SPAC route, then state what percentage of the company existing holders retain.

Step 6: All-In Cost of Each Route

Show All-In Cost Formula

IPO All-In Cost = Underwriting Fee + Other Offering Costs + [Primary Shares × (Fair Value per Share - Offer Price)]

De-SPAC All-In Cost = Transaction Costs + (Sponsor Founder Shares × Pro-Forma Value per Share)

Cost Ratio = All-In Cost / Net Cash Delivered

Assume:

  • The sponsor promote is a real economic cost, valued at the pro-forma value per share of the de-SPAC route
  • The IPO discount is a real economic cost — primary shares sold below fair value transfer value from existing holders to new investors
  • SPAC warrants, earn-out shares and the sponsor's at-risk capital are ignored for simplicity

Using these inputs, compute the all-in cost and the cost ratio of each route, then state which route leaves existing shareholders better off.

💡 Model answer

Try answering out loud first — then reveal the model answer and compare.

⚠️ Common mistakes

  • Treating the SPAC trust size as the cash the company will receive — the trust is an upper bound, and redemptions can remove almost all of it before closing
  • Comparing the two routes on percentage ownership retained instead of value per share; the de-SPAC route can leave holders with a larger slice of a materially smaller pie
  • Ignoring the IPO discount because it is not an invoiced fee — money left on the table was the largest single cost of the IPO route in this case
  • Valuing the sponsor promote at the nominal $10.00 SPAC price rather than at the pro-forma share price implied by the deal
  • Forgetting that the deferred underwriting fee is calculated on the original trust size, so it does not shrink when investors redeem

🔁 Follow-up questions

➡️ Related cases

Previous Case 105: Debt Restructuring Options

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