Going Public: Why Alternatives to the Traditional IPO Exist

Introduction

The traditional IPO is the most visible path to public markets, but it is not the only path and not always the right path. Companies that need speed, certainty, lower cost, or specific structural features sometimes choose one of four alternatives: a SPAC merger, a direct listing, a dual-track IPO/M&A process, or a reverse merger with a non-SPAC shell. Each alternative trades off the IPO's strengths (broad institutional distribution, robust price discovery, syndicate support) for different combinations of speed, certainty, cost, and capital raise. ECM bankers running pitches today routinely walk issuers through the comparative framework, and candidates studying for ECM interviews should understand why each alternative exists, what it offers, and what it costs. This article walks through the four principal alternatives and the issuer situations that justify each.

Going Public

The general term covering any structure by which a private operating company's equity becomes publicly tradeable. The principal paths are the traditional IPO, the SPAC merger, the direct listing, the reverse merger with a non-SPAC shell, and the dual-track process that runs an IPO and an M&A sale in parallel. Each path produces a public listing but with different combinations of speed, capital raise, distribution, and structural cost.

The traditional IPO is the default path to public markets, and understanding what it actually delivers is the only way to evaluate when an alternative makes sense.

The IPO's Strengths

The traditional IPO produces broad institutional distribution through the bookrunner syndicate's relationships with hundreds of long-only mutual funds, pensions, sovereign wealth funds, and hedge funds. It produces robust price discovery through the bookbuilding process, which collects orders at multiple price levels and lets the syndicate set a price that clears demand. It produces a clean public-market debut with stabilization support through the greenshoe option in the first thirty days. And it produces a primary capital raise that funds the issuer's growth, debt paydown, or M&A strategy.

The IPO's Costs and Limitations

The IPO's costs are the flip side of its strengths. The 12-to-18-month preparation cycle is long, especially for issuers needing capital quickly. The 4-to-7 percent gross spread plus several million dollars in legal, audit, and printer fees adds up. The price uncertainty during the roadshow, where the deal could revise lower or pull, creates execution risk the issuer cannot fully hedge. The disclosure burden, both at filing and through ongoing public reporting, is substantial. And the dependence on broad institutional distribution means the IPO favors issuers with broad investor appeal over those targeting specific investor segments.

A special purpose acquisition company (SPAC) is a publicly-listed shell company that raises capital in its own IPO with the explicit purpose of acquiring a private operating company within a defined window (typically two years). The acquisition (the "de-SPAC") takes the operating company public by merger.

Speed and Price Certainty as the SPAC Pitch

SPACs offer two principal advantages over a traditional IPO. Speed: the de-SPAC merger typically closes in 3 to 6 months from announcement, compared to 12 to 18 months for an IPO. Price certainty: the merger valuation is negotiated upfront between the SPAC sponsor and the target company's management, removing the bookbuilding price uncertainty inherent in an IPO. SPACs also let issuers go public with forward-looking projections more aggressively than the IPO disclosure rules typically permit, and the SPAC sponsor often brings industry expertise and post-merger board governance that the operating company values.

Promote, Warrants, and the Redemption Drag

SPACs carry their own costs. The sponsor's "promote" dilutes the operating company's equity by typically 20 percent of the SPAC's IPO shares. Warrants issued at the SPAC IPO create additional future dilution if the stock trades up post-merger. Public-company SPAC shareholders have the right to redeem their shares before the merger closes, and recent redemption rates of 80 to 90 percent have meant that SPACs raise much less actual cash than their announced trust size suggests. A SPAC with $200 million in trust may deliver only $20 million to $40 million to the combined company after redemptions, which has forced sponsors to layer in PIPE financing to plug the cash gap.

Where SPACs Fit Best

SPACs work best for operating companies that can credibly use the speed and price certainty advantages, that have a sponsor whose expertise meaningfully adds value, and that can absorb or work around the dilution and redemption costs. Capital-intensive businesses (electric vehicles, space, biotech) used SPACs heavily in the 2020-2021 wave, partly because the forward-looking projections SPACs allow were valuable for pre-revenue stories that could not credibly clear an IPO bookbuilding process.

A direct listing is a path to public markets where the issuer's existing shares simply begin trading on a stock exchange without an underwriter, a roadshow, a price range, or a primary capital raise. The structure was pioneered by Spotify in 2018 and used by Slack, Palantir, Coinbase, and Roblox in subsequent years.

No Underwriters, No Lockup, No Discount

Direct listings eliminate three of the IPO's costliest features. There is no underwriter syndicate, so the gross spread (typically 4 to 7 percent of an IPO) does not apply. There is no traditional lockup, so pre-IPO investors and employees can sell from day one. And there is no IPO discount, so the price the market discovers on day one is the price the seller actually receives.

The Narrow Issuer Profile That Fits

Direct listings work only for a narrow set of issuers. The structure assumes the company is already well-known to institutional investors (otherwise the price discovery on opening day fails), produces no primary capital raise (so an issuer needing growth capital cannot use this path without a separate financing round), and provides no syndicate stabilization in the early days of trading. Spotify and Coinbase succeeded as direct listings because their brands and businesses were already extensively covered by sell-side analysts and institutional investors before listing; less well-known issuers cannot replicate the structure.

Where Direct Listings Fit Best

Direct listings fit issuers that meet four conditions: well-established institutional investor recognition (so the opening-day price discovery is robust), no immediate need for primary capital (so the lack of capital raise is acceptable), strong existing financial position (so the loss of underwriter quality assurance is acceptable), and shareholder pressure for early liquidity (since lockup-free trading benefits employees and pre-IPO investors). The set of issuers meeting all four conditions is small, which is why direct listings remain a niche structure used by perhaps three to six US companies per year.

A dual-track process runs an IPO preparation track and an M&A sale process in parallel, letting the issuer choose between the two paths based on which produces the better outcome. The structure is most common for private-equity-backed companies where the sponsor wants to maximize exit value and is indifferent between an IPO exit and a strategic or sponsor-to-sponsor sale.

Competitive Tension Across Two Paths

The dual-track approach delivers competitive tension between the two paths. The IPO market sees the company is also entertaining an M&A sale, which can sometimes accelerate IPO interest from anchor investors who do not want the company to be sold. The M&A buyer universe sees the company is preparing to go public, which can pressure strategic and sponsor buyers to put forward higher bids before they lose access to the asset. The result is often a better outcome on either path than running either process alone.

Double the Cost, Double the Information Risk

Running two processes simultaneously is more expensive than running one. Two sets of advisors, two parallel diligence workstreams, two streams of management time. The increased information flow also raises the risk of information leakage, with M&A buyers learning about the IPO process and IPO investors hearing about the sale process. Strong working groups manage these risks but cannot eliminate them.

Recent Dual-Track Patterns

The 2025 environment saw dual-track processes increasingly include a SPAC track alongside the traditional IPO and M&A tracks, reflecting a more disciplined SPAC market that returned as a credible alternative after the 2022-2023 collapse. The "hedged" approach lets sponsors run all three options (IPO, M&A, SPAC) until late in the process before committing.

Triple-Track Process

A modern variant of the dual-track exit framework that preserves three exit paths in parallel: a traditional IPO, a private M&A sale, and a GP-led continuation vehicle (CV) that lets the sponsor sell the asset from its existing fund into a newly-formed continuation fund managed by the same GP. Triple-tracks have become standard practice for sophisticated private-equity sponsors with high-conviction, larger-cap portfolio companies where the comparative outcomes across the three paths are genuinely close. The CV path now accounts for nearly 19 percent of sponsor-backed exit volume and is treated as a peer alternative to IPO and M&A rather than a fallback.

A reverse merger takes a private company public by acquiring a publicly-listed shell company that has no operating business. The structure is fundamentally similar to a SPAC merger but uses a non-SPAC shell.

The Fastest, Cheapest Listing Path

The reverse merger is the fastest and cheapest path to a public listing for smaller-cap issuers. Total time can be 90 days or less; total cost is dramatically lower than an IPO; the regulatory burden is meaningfully lighter because the shell company is already public.

Reputational and Liquidity Costs

The cost is reputational and structural. Reverse-merged issuers often have limited initial trading liquidity, sometimes trading only on OTC Markets rather than on major exchanges. Affiliate-share resale restrictions under Rule 144 typically apply for one year post-merger. The structure is widely viewed as a smaller-cap, lower-quality path to public markets, which limits institutional investor interest. December 2025 Nasdaq rule changes added further requirements that further constrained the structure for smaller issuers.

Where Reverse Mergers Fit Best

Reverse mergers fit smaller issuers where the cost and time savings of avoiding an IPO outweigh the reputational and liquidity costs of the structure. The set of issuers for whom this trade-off makes sense is narrow but real, particularly in micro-cap technology, biotech, and resource-extraction sectors where IPO economics do not work for issuers below a certain size.

ECM bankers running a comparative pitch work through a structured framework to recommend which path fits the issuer. The framework runs through a sequence of decision points that progressively narrow the viable paths for any specific issuer.

The Capital Need Question

If the issuer needs primary capital at scale, the path narrows quickly: a traditional IPO or a SPAC delivers primary capital, while a direct listing does not. Within the IPO/SPAC choice, the SPAC is preferred when speed or price certainty is paramount, and the IPO is preferred for scale, distribution, and stabilization.

The Distribution Question

If the issuer needs broad institutional distribution to support a stable public-market debut, the IPO is the dominant choice. SPACs deliver narrower distribution because the post-redemption shareholder base is often heavily concentrated in PIPE investors. Direct listings work only for issuers whose institutional recognition makes broad pre-marketing unnecessary.

The Speed Question

If the issuer needs to be public within six months for strategic or competitive reasons, a SPAC merger or reverse merger is the only viable path. Traditional IPO and direct listing both require 12 to 18 months of preparation.

The Disclosure Question

If the issuer wants to communicate forward-looking projections aggressively, a SPAC merger has historically been the preferred path because the SPAC disclosure regime allowed projections that the IPO regime did not. The 2024 SEC SPAC rules narrowed this advantage substantially, though a meaningful gap remains.

The relative use of each alternative has shifted meaningfully over the past several market cycles, with each cycle producing lessons the working group applies to the next round of comparative pitches.

The 2020-2021 SPAC Wave

The 2020-2021 SPAC boom saw record SPAC IPO issuance, with hundreds of SPACs raising tens of billions of dollars in trust. The wave delivered a handful of genuine successes (most notably DraftKings) alongside high-profile post-merger disappointments such as Lucid Motors (down sharply from its SPAC reference price) and Virgin Galactic (which suspended commercial spaceplane operations in 2024), with a long tail of other de-SPAC mergers that have traded poorly. The collapse of average de-SPAC stock performance through 2022-2023 led to the SEC's January 2024 SPAC rules, which narrowed the structural advantages of the SPAC path.

The 2025 SPAC Revival

After SPAC IPO activity recovered modestly to approximately $9.6 billion in 2024 (up from the $3.8 billion trough in 2023), the structure rebounded sharply in 2025: through the first three quarters, roughly 100 SPAC IPOs raised approximately $20.76 billion on US senior exchanges, with multiple deals exceeding $1 billion in trust size. The 2025 revival has been driven primarily by institutional serial sponsors, who accounted for 78 percent of new SPAC IPOs in Q1 and 80 percent in Q2. The 2025 cohort runs on materially more disciplined structures than the 2020-2021 wave: smaller promotes, fewer warrants per unit, longer earnout vesting, and more conservative forward-looking projections in line with the post-2024 disclosure requirements.

The Direct Listing Moment

The 2018-2021 period produced a small but high-profile cohort of direct listings (Spotify, Slack, Palantir, Coinbase, Roblox) that demonstrated the structure's viability for well-known issuers. Direct listings have remained a niche structure since then, with perhaps three to five large US direct listings per year. The structure's narrow applicability has limited its broader adoption despite the publicity around its early successes.

The Dual-Track Resurgence

Dual-track processes have re-emerged in 2024-2025 as sponsors hedge between the IPO market and strategic-buyer interest. The "triple-track" variant adds a SPAC alongside the IPO and M&A tracks for sponsors willing to keep all three options open. The increased complexity is justified when the asset is meaningfully valuable and the comparative outcomes across paths are genuinely close.

The Reverse Merger Niche

Reverse mergers have remained a small but persistent path for micro-cap and smaller-cap issuers where IPO economics do not justify the cost. The December 2025 Nasdaq rule changes tightened listing standards on reverse-merged companies, narrowing the path further but not eliminating it. The structure persists for the smallest issuers where no other alternative is economically viable.

Bankers running a "going public" comparative pitch produce a structured deliverable that walks the issuer through the comparative framework with specific data points for the issuer's situation.

The Comparative Deck

A typical comparative deck runs 30 to 60 pages and includes a one-page executive summary recommendation, a path-by-path analysis of timing, cost, capital raise, distribution, and structural features, peer-issuer case studies showing how comparable companies fared on each path, an issuer-specific scoring matrix, and a recommended path with the supporting rationale. The deck is co-authored by the lead-left coverage banker and the ECM origination banker, with input from the bank's M&A team if a dual-track is in scope.

Issuer Decision-Making

The issuer's decision-making process for the comparative analysis typically involves the CFO, the lead pre-IPO sponsor, and the CEO, sometimes with the board ratifying the chosen path. The decision is made over several weeks of dialogue, with the bankers refining the analysis as the issuer's preferences crystallize. The decision is harder than the typical IPO mandate because the issuer is choosing among structurally different paths rather than within a single structure.

Post-Decision Execution

Once the issuer commits to a path, the working group transitions from comparative analysis to execution within the chosen path. Each path has its own subsequent workflow (IPO bake-off and full process for traditional IPOs; SPAC partner identification and de-SPAC negotiation for SPAC mergers; investor education for direct listings; parallel IPO and M&A processes for dual-track). The bank stays engaged through the chosen path's full execution.

Different sectors gravitate toward different alternative structures based on the typical issuer profile and the structural features that fit each sector's economics.

Technology and Software

Technology and software issuers in the 2020-2021 cycle used SPACs heavily for capital-intensive themes (electric vehicles, space, autonomous driving) where forward-looking projections were central to the equity story. Direct listings have been the alternative path of choice for highly-recognized software issuers (Slack, Palantir) where the institutional investor base was already deep before listing. The traditional IPO remains the dominant path for most software companies, particularly those with multi-year retention metrics that benefit from full institutional distribution.

Healthcare and Biotech

Biotech issuers have used SPAC mergers selectively for clinical-stage stories where the IPO market is closed or where the issuer needs to communicate forward-looking pipeline value that the IPO disclosure regime constrains. The traditional IPO remains the dominant path for commercial-stage healthcare. Reverse mergers see continued use among smallest-cap biotech issuers below the typical IPO economic threshold.

Industrials and Energy

Industrials and energy issuers tend toward traditional IPOs given the capital-markets infrastructure for large institutional placements in these sectors. SPACs occasionally appear for capital-intensive energy transition themes (battery storage, hydrogen, carbon capture). Dual-track processes are common for sponsor-backed industrial platform exits where the M&A buyer universe is deep.

Consumer

Consumer issuers tend toward traditional IPOs because retail brand affinity benefits from broad institutional distribution and aftermarket support. Direct listings see selective use for category-leading consumer brands with strong existing investor recognition. SPAC and reverse merger paths are uncommon for meaningful-sized consumer issuers.

With the comparative framework in hand, the rest of this section drops down a level into the mechanics of each path. The first stop is the most structurally complex of the four: a SPAC, where the sponsor's promote, the trust account, and the warrant overhang define the economics that any banker pitching the SPAC route has to be able to model on the spot.