SPECIAL PURPOSE ACQUISITION COMPANY (SPAC)

PRINCIPLES OF A SPAC

The key to a successful SPAC is a convincing idea for acquisitions driven by an experienced management team with proven expertise in a specific business sector. 


The SPAC requires a sponsor (or group of Sponsors) to fund the 5% pre-IPO capital. The investment banker's securities underwrites the SPAC. 


The SPAC has a limited window to select the acquisitions, which are carried out after shareholder approval.

 

SPAC OVERVIEW

A SPAC is a company formed for raising capital through an initial public offering (IPO) for the purpose of acquiring one or more operating companies, as well as assets, intellectual property or technologies, related to pre-defined industries, geographical areas or investment strategies.


The SPAC raises the funds through a public offering typically on NASDAQ or the NYSE.


A SPAC requires an experienced board of directors and a management team, who are the founders, with a pre-IPO equity sponsor who invests approximately 5% of the targeted IPO funds in a private placement simultaneous with the IPO. In return, Sponsors receive 25% of the SPAC’s foundershares.Additionally, sponsors typically receive five-year warrants in exchange for their investment. Sponsors generally participate in the Board of a SPAC.

ADVANTAGES OF A SPAC

A SPAC is a unique financial tool for raising institutional capital for acquisitions based solely upon the expertise of an executive team.


A SPAC IPO raises capital relatively quickly, typically taking four months from start to finish.


A SPAC with cash has advantages in a global market characterised by debt.
As a public company, a SPAC has comparative advantages in making acquisitions. SPACs may conclude larger acquisitions by using its stock as currency and raising additional equity and debt by virtue of its public company status.


SPACs offer private equity sponsors with liquidity and an exit strategy, and founders with substantial equity in the company, in exchange for their talent and expertise.


Risk is minimised for a sponsor, with cash held in trust, and risk linked directly to the SPAC’s successful acquisition(s). 

SPAC LIFESPAN

IPO PHASE

  • Engage counsel and auditors

  • Incorporate SPAC and sell founder share

  • Prepare S-1

  • File S-1 and amendments responsive to SEC comments (6+weeks)

  • Negotiate underwriting and ancillary agreements

  • Road show, pricing and closing

TARGET SEARCH AND
NEGOTIATION PHASE

  • Regular periodic SEC fillings

  • Identify target business

  • Conduct diligence and negotiate acquisition agreement

  • Potentially arrange committed PIPE and/or debt financing

  • Begin preparing proxy/tender offer document

  • Sign acquisition agreement and financing commitments

APPROVAL/CLOSING PHASE

  • Announce acquisition agreement

  • File preliminary proxy/tender offer document

  • Meeting with SPAC investors to discuss transaction

  • Obtain shareholder approval/renegotiate transaction or return to target search

  • Redeem public shares of electing holders

  • Close transaction

  • File Super 8-K

 

INVESTOR BENEFITS

SECURITY

Capital held in a trust account pending approval

of a business combination via a shareholder vote

or return of capital via tender offer.

 

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