Public vs. Private Equity: There Is More than One Access to Capital

Public vs. Private Equity: There Is More than One Access to Capital

Private equity uses special purpose acquisition companies (SPACs) to raise capital on stock exchanges. At the same time, special SME segments of stock exchanges like Sparks at SIX Swiss Exchange tap public equity for companies that are still in a growing stage. So, what again is the difference between private and public equity?

When a company needs money, it can either borrow debt capital or sell shares to raise equity. A differentiation is commonly drawn between private equity and public equity.

The term “private equity” denotes shares of owner‑ ship in companies that are not (or not yet) listed on a stock exchange. The term “public equity” refers to shares of companies that already trade on a stock exchange.

But private and public equity appear to have moved a bit closer together lately. Special purpose acquisition companies, or SPACs for short (see box in blue below), promise to accelerate and simplify the path to a stock exchange. Since December 6, 2021, SPACs can also be listed and traded on SIX Swiss Exchange. At the same time, special market segments for SMEs – such as Sparks from SIX (see box in grey below) or BME Growth – make it more attractive for companies still in a growing stage to go public. There currently are more than 30 companies listed on the BME Growth submarket alone, which is owned by SIX following its takeover of BME.

And going public also presents an opportunity to make incumbent investors’ shareholdings tradable. It turns private equity into public equity, coming full circle.    

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What Are SPACs?

A special purpose acquisition company (SPAC) is a corporation without active business operations that is founded through an initial public offering. The objective of this “corporate shell” is to use the capital raised through the IPO to acquire a privately held company. The identity of the takeover target is usually unknown at the time of the founding of a SPAC, and investors must approve the proposed acquisition.

When a takeover occurs, shares in the SPAC are then converted into shares of the acquired company, which thus turns into a publicly traded company that thenceforth must meet all of the obligations associated with a listing. If an acquisition does not take place by a certain deadline (usually two years), the SPAC’s share capital, less any taxes, is returned to investors.

Since December 6, 2021, SPACs can be listed and traded on SIX Swiss Exchange. Authorization from all of the relevant authorities has been obtained. The new listing standard for SPACs caters for the specific characteristics of these vehicles while upholding an appropriate degree of investor protection.

Here you can find more information on SPACs on SIX Swiss Exchange.

Sparks – the New Segment for SMEs on the Swiss Stock Exchange

Going public on SIX Swiss Exchange doesn’t just stimulate the growth of SMEs, but also makes them sturdier during tough economic times. Companies now have a new quick way of raising capital, diversifying their sources of funding, optimizing their ownership structure, increasing their visibility to investors, and enhancing their credibility in the eyes of partners and customers.

Issuer requirements in the Sparks segment are less onerous than those on the main stock  exchange. However, all companies listed on the Swiss stock exchange are subject to the same reporting requirements and the same regulatory oversight, which ensures transparency and investor protection in the Sparks segment as well.

Shares of newly listed SMEs that are in a growing stage generally have comparatively lower trading liquidity. Sparks takes this into account by concentrating trading into a condensed trading window, which enables investors to benefit from more efficient price discovery and improved execution of trades.

Sparks supplements the other services from SIX that are specially customized for SMEs. Those services include Stage, a program that supplies independent research to increase visibility, and Bridge, a service that links stock issuers with investors, as well as workshops and e-learning offerings.

Find out more about Sparks and discover how you can grow further after going public.

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