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Special Purpose Acquisition Co (SPAC)

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Last Post: 1/15/2021 10:48:59 AM - Followers: 117 - Board type: Free - Posts Today: 0

What is a Special Purpose Acquisition Company (SPAC)?

A special purpose acquisition company (SPAC) is a corporation formed for the sole purpose of raising investment capital through an initial public offering (IPO). Such a business structure allows investors to contribute money towards a fund, which is then used to acquire one or more unspecified businesses to be identified after the IPO.

 

When the SPAC raises the required funds through an IPO, the money is held in a trust until a predetermined period elapses or the acquisition is made. In the event that the planned acquisition is not made or legal formalities are still pending, the SPAC is required to return the funds to the investors, after deducting bank and broker fees.

 

How Does a Special Purpose Acquisition Company Work?

 

Founders

A special purpose acquisition company is formed by experienced business executives who are confident that their reputation and experience will help them identify a profitable company to acquire. Since the SPAC is only a shell company, the founders become the selling point when sourcing funds from investors.

The founders provide the starting capital for the company and they stand to benefit from a sizeable stake in the acquired company. The founders often hold an interest in a specific industry when starting a special purpose acquisition company.

 

Issuing the IPO

When issuing the IPO, the management team of the SPAC contracts an investment bank to handle the IPO. The investment bank and the management team of the company will agree on a fee to be charged for the service, usually about 10% of the IPO proceeds. The securities sold during an IPO are offered at a unit price, which represents one or more shares of common stock.

The prospectus of the SPAC mainly focuses on the sponsors, and less on company history and revenues since the SPAC lacks performance history or revenue reports. All proceeds from the IPO are held in a trust account until a private company is identified.

 

Acquiring a Target Company

After the SPAC has raised the required capital through an IPO, the management team has 18 to 24 months to identify a target and complete the acquisition. The period may vary depending on the company and industry. The fair market value of the target company must be 80% or more of the SPAC’s trust assets.

Once acquired, the founders will profit from their stake in the new company, usually 20% of the common stock, while the investors receive an equity interest according to their capital contribution.

In the event that the predetermined period lapses before an acquisition is completed, the SPAC is dissolved, and the IPO proceeds held in the trust accounts are returned to the investors. When running the SPAC, the management team are not allowed to collect salaries until the deal is completed.

 

SPAC Capital Structure

 

Public Units

A SPAC floats an IPO to raise the required capital to complete an acquisition of a private company. The capital is sourced from retail and institutional investors, and 100% of the money raised in the IPO is held in the trust account. In return for the capital, investors get to own units, with each unit comprising a share of common stock and a warrant to purchase the common stock at a later date.

The purchase price per unit of the securities is usually $10.00. After the IPO, the units become separable into shares of common stock and warrants, which can be traded in the public market. The purpose of the warrant is to provide investors with additional compensation for investing in the SPAC.

 

Founder Shares

The founders of the SPAC will purchase founder shares at the onset of the SPAC registration, and pay nominal consideration for the number of shares that results in a 20% ownership stake in the outstanding shares after the completion of the IPO. The shares are intended to compensate the management team, who are not allowed to receive any salary or commission from the company until a combination transaction is completed.

 

Warrants

The units sold to the public comprise a fraction of a warrant, which allows the investors to purchase a whole share of common stock. Depending on the bank issuing the IPO and the size of the SPAC, one warrant may be excisable for a fraction (either half, one-third or two-thirds) or a full share of stock.

For example, if a price per unit in the IPO is $10, the warrant may be exercisable at $11.50 per share. The warrants become exercisable either 30 days after the De-SPAC transaction or twelve months after the SPAC IPO.

The public warrants are cash-settled, meaning that the investor must pay the full cost of the warrant in cash to receive a full share of stock. Founder warrants, on the other hand, maybe net settled, meaning that they are not required to deliver cash to receive a full share of stock. Instead, they are issued with shares of stock with a fair market value equal to the difference between the stock trading price and the warrant strike price. 

Useful Website

https://spacinsider.com/



 
 


PostSubject
#1215  Sticky Note CAP's vs SPAC's MWM 12/23/20 06:41:28 AM
#1330   No announcement yet. eom7 01/15/21 10:48:59 AM
#1329   SSET @ .06: Tot. shares 16M..Spinning off SPAC gp22 01/15/21 09:52:32 AM
#1328   what coampany is ANDA partnefring with the last jsc52033 01/15/21 09:51:32 AM
#1327   thanks eom jsc52033 01/15/21 09:42:08 AM
#1326   https://www.prnewswire.com/news-releases/subversive-capital-acquisition-corp-clo JohnCM 01/15/21 09:38:47 AM
#1325   There are mini-bubbles everywhere. JohnCM 01/15/21 06:45:07 AM
#1324   All the pot ones, GNRS(W), MCMJ(W) SSPK(W) too. dijeetyet 01/14/21 06:07:39 PM
#1323   1.50 AH eom7 01/14/21 05:55:21 PM
#1322   CFAC - AEye Said in Talks to Go Quintessence 01/14/21 04:48:48 PM
#1321   Hmmm I know their last deal didn't workout dijeetyet 01/14/21 02:50:11 PM
#1320   Exactly! ANDAW .97 - breaking out eom7 01/14/21 02:06:33 PM
#1319   You know what's easy about these? with one dijeetyet 01/14/21 11:52:11 AM
#1318   stockscores.com I use for posting on ihub... MWM 01/14/21 11:07:37 AM
#1317   Same here. Q1 is SPACAPOLOOZA eom7 01/14/21 10:00:55 AM
#1316   what chart service are yu using My stockcharts jsc52033 01/14/21 09:56:19 AM
#1315   thanks eom jsc52033 01/14/21 09:51:22 AM
#1314   Well that is the only one you missed lol! MWM 01/14/21 09:36:02 AM
#1313   RPLA RPLA/WS has a deal with Finance of America dijeetyet 01/14/21 09:22:51 AM
#1312   I didn't get any, I just corrected a ErnieBilco 01/14/21 08:38:00 AM
#1311   Nice Ernie, you are the Warrant man. Hands MWM 01/14/21 08:31:37 AM
#1310   Yep, might just do nothing but SPAC's this Golden_Cross 01/14/21 04:09:27 AM
#1309   HECCW 2.35 - This is an extraordinary achievement eom7 01/14/21 12:57:30 AM
#1308   Omnichannel Acquisition Corp. Announces the Separate Trading of eom7 01/14/21 12:31:00 AM
#1307   Thanks GC. We need to get this eom7 01/14/21 12:22:52 AM
#1306   what is the new one tia jsc52033 01/13/21 08:01:14 PM
#1305   Shootin' fish in a barrel ... JohnCM 01/13/21 06:47:57 PM
#1304   BFI now has Options Golden_Cross 01/13/21 06:29:46 PM
#1303   ok, I see. eom7 01/13/21 03:07:54 PM
#1302   No but last year I owned the spac dijeetyet 01/13/21 02:38:42 PM
#1301   Guess the mkt doesn't love it! eom7 01/13/21 02:18:02 PM
#1300   Finance of America dijeetyet 01/13/21 02:12:58 PM
#1299   Have they announced a deal? eom7 01/13/21 01:55:00 PM
#1298   What about RPLA RPLA/ws ? dijeetyet 01/13/21 01:34:41 PM
#1297   Agreed... I am thinking below $1.50 = just buy eom7 01/13/21 11:20:43 AM
#1296   This is CRAZY!! JohnCM 01/13/21 11:12:46 AM
#1295   GNRS. Sorry! I have ticker dyslexia. I switch dijeetyet 01/13/21 10:52:21 AM
#1294   TY! eom7 01/13/21 10:22:51 AM
#1293   Subversive Capital A (SBVCF) JohnCM 01/13/21 10:17:55 AM
#1292   Because it is GNRSW ErnieBilco 01/13/21 09:53:49 AM
#1291   Subversive (California Cannabis) (SBVCF) is running. JohnCM 01/13/21 09:37:33 AM
#1290   GRNS? Ticker doesn't work. eom7 01/13/21 09:28:23 AM
#1289   https://www.youtube.com/embed/rrSdXtFJG20 JohnCM 01/13/21 09:24:25 AM
#1288   Nice. Wish they had warrants... eom7 01/13/21 09:21:42 AM
#1287   Subversive Capital Acquisition Corp (SBVCF) Announces Limited Redempti JohnCM 01/13/21 09:18:51 AM
#1286   Twenty bucks in 90 days. JohnCM 01/12/21 11:40:52 PM
#1285   I tried to buy warrants for that one dijeetyet 01/12/21 11:40:09 PM
#1284   https://ih.advfn.com/p.php?pid=staticchart&s=SBVCF&p=1&t=17&width=288&heigh JohnCM 01/12/21 11:34:34 PM
#1283   I'm liking SSPK/SSPKW MCMJ/MCMJW and GRNS/GRNSW dijeetyet 01/12/21 09:46:15 PM
#1282   yhanks eom jsc52033 01/12/21 10:12:12 AM
#1281   CCIV eom7 01/12/21 10:05:33 AM
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