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Special Purpose Acquisition Co (SPAC)

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Last Post: 11/25/2020 11:38:41 AM - Followers: 104 - Board type: Free - Posts Today: 9

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
#1156   NV Shell creede 11/25/20 11:38:41 AM
#1155   AWGI interesting... MWM 11/25/20 11:20:13 AM
#1154   LMB volume alert. Surging to $12.63 creede 11/25/20 11:17:34 AM
#1153   WOW SPAC ATTACK FSR & NBAC= $$$$$$ [SMART MONEY] 11/25/20 09:58:06 AM
#1152   I was hot into SPACS. Made a buck. JohnCM 11/25/20 09:18:01 AM
#1151   (INAQ) INSU Acquisition II to take digital auto [SMART MONEY] 11/25/20 08:11:53 AM
#1150   why? Im shocked many people didnt buy NBAC [SMART MONEY] 11/25/20 08:08:20 AM
#1149   $NBAC 13.95 from ($10-15.69) https://investorshub.advfn.com/boards/read_msg.aspx?message_id=159662 [SMART MONEY] 11/25/20 07:40:09 AM
#1148   Out of all Spac's. JohnCM 11/25/20 02:45:39 AM
#1147   Hope you picked up some SAMA, running into eom7 11/24/20 01:01:55 PM
#1146   started a board for Gores V, https://investorshub.advfn.com/Gores-Holding-V-Inc- db7 11/24/20 11:49:18 AM
#1145   $LCA Golden Nugget Online Gaming Secures West_Virginia_Market_Access Golden_Cross 11/24/20 04:08:07 AM
#1144   LMB making me proud. HOD of $12.60 creede 11/23/20 03:50:25 PM
#1143   $NBAC finally starting to makes it move [SMART MONEY] 11/23/20 01:22:55 PM
#1142   CIIC $22's wow meanwhile NBAC $10's ?????????? [SMART MONEY] 11/23/20 09:43:09 AM
#1141   New SPAC today LGVW LGVW/WS [SMART MONEY] 11/20/20 10:47:48 AM
#1140   Thank you! JohnCM 11/19/20 07:54:01 PM
#1139   2 posts that may interest you: okavango 11/19/20 06:52:54 PM
#1138   I will start putting together a list of JohnCM 11/19/20 04:24:31 PM
#1137   https://investorshub.advfn.com/boards/read_msg.aspx?message_id=159607898 [SMART MONEY] 11/19/20 04:00:41 PM
#1136   Cool. Yes, there are a ton! JohnCM 11/19/20 12:14:54 PM
#1135   Hi db7 dijeetyet 11/19/20 12:01:06 PM
#1134   nice job dij! 'and' thanks for all db7 11/19/20 11:55:11 AM
#1133   GIK GIK/ws dijeetyet 11/19/20 11:52:19 AM
#1132   I made a huge watch list. dijeetyet 11/19/20 11:42:37 AM
#1131   Possible Canadian dispensary stock breakout High Tide. JohnCM 11/19/20 10:19:00 AM
#1130   agree once they let it go, could get [SMART MONEY] 11/19/20 10:09:59 AM
#1129   NBAC looks good!! JohnCM 11/19/20 10:00:03 AM
#1128   $NBAC showing 2.3M OS? 230k float? https://www.finviz.com/quote.ashx?t=nb [SMART MONEY] 11/19/20 09:50:05 AM
#1127   https://www.stockscores.com/chart.asp?TickerSymbol=NBAC&TimeRange=180&Inter JohnCM 11/19/20 09:32:27 AM
#1126   $NBAC $NBACW 10.04 NEW EV SPAC https://nuvve.com/nuvve-and-lion-electric-announce-v2g-collaboration [SMART MONEY] 11/19/20 09:28:47 AM
#1125   NBAC 10.04 NEW EV SPAC https://nuvve.com/nuvve-and-lion-electric-announce [SMART MONEY] 11/19/20 09:07:26 AM
#1124   It appears all blank check stocks start at JohnCM 11/19/20 08:34:33 AM
#1123   $TTCF Keep adding here when I can...I think Golden_Cross 11/18/20 07:25:56 PM
#1122   $LCA Great week here...Chart very bullish... Golden_Cross 11/18/20 07:23:40 PM
#1121   thanks for the alert on CIIC tshel 11/18/20 09:04:44 AM
#1120   CIIC CIICW dijeetyet 11/17/20 02:51:45 PM
#1119   TRNE, TRNE/WS dijeetyet 11/17/20 11:45:04 AM
#1118   Legit sponsors eom7 11/17/20 09:49:35 AM
#1117   And why? MWM 11/17/20 09:24:07 AM
#1116   YSACU - I'll be looking at the warrants eom7 11/17/20 08:54:21 AM
#1115   I think Tuesday they change the ticker to MP?... Pisd 11/13/20 12:43:30 PM
#1114   It's moving this morning. Warrants up to ErnieBilco 11/13/20 08:37:21 AM
#1113   Molycorp!?!? JohnCM 11/13/20 08:24:27 AM
#1112   I've got some Fortress, old Molycorp ..FVAC$ gl... Pisd 11/13/20 06:50:31 AM
#1111   Outstanding Shares JohnCM 11/13/20 02:39:43 AM
#1110   LMB just crushed it again despite COVID. creede 11/12/20 08:45:04 AM
#1109   Don't know. Since I never get in nsomniyak 11/09/20 09:17:47 PM
#1108   What happens to SPAC units after merger that SilverKnightLV 11/09/20 04:45:56 PM
#1107   OPES Burger joint merger dijeetyet 11/09/20 10:08:26 AM
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