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Special Purpose Acquisition Co (SPAC)

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Last Post: 5/12/2021 6:18:06 PM - Followers: 122 - 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
#1527   lol. Handy little guy. harr449 05/12/21 06:18:06 PM
#1526   www. TINY url.com JohnCM 05/12/21 04:07:49 PM
#1525   tinyurl.com useful. harr449 05/12/21 04:05:31 PM
#1524   https://d1io3yog0oux5.cloudfront.net/_76c9aeee1ea13ff6c016131360b8e780/choicecon JohnCM 05/12/21 03:04:47 PM
#1523   Choice Consolidation Corp. to Begin Trading on the JohnCM 05/12/21 09:47:07 AM
#1522   Financials SPAC Serendipity Capital Acquisition files for a [SMART MONEY] 05/08/21 02:29:55 PM
#1521   WSJ: "SPACs we're watching": okavango 05/01/21 07:48:54 AM
#1520   https://www.foxbusiness.com/media/forbes-pursues-spac-talks-amid-new-takeover-interest-sources [b Bountiful_Harvest 04/30/21 09:05:49 AM
#1519   GMII/GMIIW, https://ih.advfn.com/stock-market/NASDAQ/gores-metropoulos-ii-GMIIU/ db7 04/30/21 06:19:38 AM
#1518   Topps($MUDS): A Well Priced Company With Substantial ($28) Upside freddie me 04/27/21 03:02:16 PM
#1516   Hot SPAC Topps($MUDS), former Disney Chair/CEO https://www.bloombergquint.com/bu freddie me 04/26/21 11:10:52 AM
#1515   spacs fun while it lasted, holding only two koolmc 04/19/21 01:47:32 PM
#1514   end of spac boom? koolmc 04/16/21 09:47:19 AM
#1513   SoftBank-backed Grab agrees to deal to go public MWM 04/13/21 06:26:13 AM
#1512   SEC Drops Accounting Bomb, Blows Up SPAC Boom pcjockey 04/12/21 09:24:54 PM
#1511   PUGE boomin Rymar3 04/08/21 11:53:12 AM
#1510   GMII/Sonder, "backed by Jeff Bezos and Elon Musk." -> db7 04/07/21 05:43:49 PM
#1509   GMII/Sonder: https://en.wikipedia.org/wiki/Sonder_Corp. db7 04/07/21 05:35:12 PM
#1508   GMII: https://www.bloomberg.com/news/articles/2021-04-07/lodging-firm-sonder-is- db7 04/07/21 04:49:27 PM
#1507   GMIIU/GMII/GMIIW wiggling....fat finger trade get her going or db7 04/07/21 02:43:29 PM
#1506   $MUDS warrants are '27 maturity?! Wow! freddie me 04/06/21 03:33:02 PM
#1505   $MUDS-Eisner(formerDisney) to buy TOPPS Cards, Enter NFTs, crypto freddie me 04/06/21 01:29:38 PM
#1504   The ONLY OTC stock with a SEC effective Djdjdjdj 04/02/21 01:45:46 PM
#1503   They are not SPACs. They are shells. nsomniyak 04/01/21 01:40:03 PM
#1502   #SPAC @ $SNDL Sundial And SAF Group Recently SpotOnTrade 04/01/21 01:34:56 PM
#1501   Anyone here in Lazar’s ARAT or EGOC? MIC 03/31/21 01:59:57 PM
#1500   BOWX BowX Acquisition Corp. JohnCM 03/26/21 03:35:50 PM
#1499   $THCB https://twitter.com/alexcutler247/status/1375438143185375243 [SMART MONEY] 03/26/21 09:24:45 AM
#1498   WeWork to go public through merger with BowX Acquisition--WSJ MWM 03/26/21 06:32:53 AM
#1497   SPACS are great for retail investors. They all JohnCM 03/26/21 12:22:02 AM
#1496   Thanks for sharing ... JohnCM 03/26/21 12:20:21 AM
#1495   Cathie Wood's space ETF to launch as soon [SMART MONEY] 03/25/21 08:11:36 PM
#1494   as it should be. There are some Scandle34 03/25/21 07:12:09 PM
#1493   Of course they are. Retail investors getting into SilverKnightLV 03/25/21 04:20:19 PM
#1492   SPAC Deal: Genesis Park (GNPK) taking Space Infrastructure Quintessence 03/25/21 03:22:31 PM
#1491   The SEC may be worried about the depth JohnCM 03/25/21 08:29:33 AM
#1490   SEC opens inquiry into Wall Street’s blank check [SMART MONEY] 03/25/21 08:21:17 AM
#1489   "Micro-SPAC?" JohnCM 03/23/21 04:30:59 PM
#1488   pink sheet shells have zero cash value whereas Scandle34 03/23/21 08:52:31 AM
#1487   Aaahhhh! So, a micro spac like tsnp tsnpd hongkongwalt88888888 03/22/21 11:52:58 PM
#1486   Sorry, I have to bow out of this one. JohnCM 03/22/21 07:14:22 PM
#1485   https://www.barrons.com/articles/how-to-play-the-new-space-race-51616195373 y [SMART MONEY] 03/22/21 05:33:28 PM
#1484   IronNet Cybersecurity and trading platform eToro lead the Golden_Cross 03/22/21 09:00:12 AM
#1483   if a sub penny stock had an enterprise Scandle34 03/22/21 08:00:29 AM
#1482   FTCV and FTCVW - got starters yesterday. May Quintessence 03/20/21 01:08:19 PM
#1481   Your feedback was unspecific. Thanks all the same. hongkongwalt88888888 03/20/21 08:37:38 AM
#1480   Indie Semiconductor SPAC: What Investors Should Know About JohnCM 03/18/21 06:47:26 AM
#1479   NGA - Legault and Trudeau reunited for Lion Golden_Cross 03/15/21 05:21:31 AM
#1478   No. The SPAC’s have more brains than that nsomniyak 03/15/21 05:12:18 AM
#1477   I want a position!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! JohnCM 03/14/21 11:26:44 PM
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