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Special Purpose Acquisition Co (SPAC)

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Last Post: 5/29/2020 5:41:54 AM - Followers: 34 - Board type: Free - Posts Today: 2

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
#476   Yep. SPACs are the NEW IPO trade circa eom7 05/29/20 05:41:54 AM
#475   Beauty. I also hold SSPKW and BRPAW eom7 05/29/20 05:40:50 AM
#474   Get back up there as a mod. I MWM 05/28/20 05:56:37 PM
#473   Yep. Waaaaay back db7 05/28/20 05:55:36 PM
#472   Where you the original founder? Sweet! Excellent idea btw! MWM 05/28/20 05:53:42 PM
#471   FMCI/FMCIW both looked great today; hoping it is db7 05/28/20 05:19:23 PM
#470   FMCI woke up today! MWM 05/28/20 03:56:42 PM
#468   RPAY SPAC from last year doing very well! MWM 05/21/20 08:26:50 PM
#467   spac it depends on what is coming in koolmc 05/21/20 10:19:06 AM
#466   Warrant is not the same 1/10 deal... MWM 05/21/20 09:49:46 AM
#465   I am thanks! eom7 05/21/20 09:12:22 AM
#464   Also SSPK, SSPKW, MCMJ, MCMJW eom7 05/21/20 09:11:58 AM
#463   I assume you are watching SPACinsider.com MWM 05/21/20 09:11:55 AM
#462   What us the warrant deal... if they are eom7 05/21/20 09:09:33 AM
#461   Not seeing anything on Twitter but someone has MWM 05/21/20 09:07:21 AM
#460   More SPACs: eom7 05/21/20 09:06:39 AM
#459   It was sitting here vacated so I grabbed MWM 05/21/20 09:04:17 AM
#458   Any idea whats up with BRPA, BRPAW? eom7 05/21/20 09:02:28 AM
#457   Dude... I was just about to set this eom7 05/21/20 08:54:50 AM
#456   CCXX Largest SPAC Ever $1.2 Billion https://www.nasdaq.com/articles/michael-kle MWM 05/21/20 04:29:15 AM
#455   Jaws Acquisition Corp. Announces Pricing of Upsized $600 MWM 05/15/20 06:52:50 PM
#454   SPAC's are newly created. They sell the shares MWM 05/15/20 09:21:11 AM
#453   Can shell stocks with NOL's be used as aquaspin 05/15/20 09:18:55 AM
#452   Great read on the SPAC market https://spacinsider.com/2020/05/14/novus-capital MWM 05/14/20 10:47:28 PM
#451   lol - no! I have been spending too creede 05/14/20 05:43:40 PM
#450   Forum Merger Corp. II Teases a Combo Ahead MWM 05/14/20 04:10:52 PM
#449   If it is Impossible Burgers, this beyond huge. dinogreeves 05/14/20 02:39:30 PM
#448   And I hope you bought that stock or MWM 05/14/20 02:37:07 PM
#447   $FMCI Forum Merger II Corporation Announces Signed Letter MWM 05/14/20 01:05:08 PM
#446   FREAKING HUGE!!! MWM 05/14/20 12:30:49 PM
#445   yep this might be the next one spce koolmc 05/14/20 12:24:08 PM
#444   FMCI FMCIW Possible Beyond meat SPAC!!! MWM 05/14/20 12:22:57 PM
#443   Not sure what you guys are talking about. MWM 05/14/20 09:06:59 AM
#442   If you can figure out a good approach, jtomm 05/13/20 08:24:46 PM
#441   Thanks, appreciate your insight! swf83 05/13/20 08:14:34 PM
#440   I've seen some warrants get flat-out canceled. Also jtomm 05/13/20 08:05:33 PM
#439   Right, but.... swf83 05/13/20 07:42:58 PM
#438   Re Warrants, I thought the same thing when jtomm 05/13/20 07:39:00 PM
#437   General question about SPACs... swf83 05/13/20 07:06:15 PM
#436   Great, thanks ErnieBilco 04/29/20 09:03:27 PM
#435   No, warrants trade after the merger the same MWM 04/29/20 09:01:28 PM
#434   Yep, it’s not an ipo. It’s just a shell. MWM 04/29/20 08:46:11 PM
#433   But won't the warrants expire with the merger ErnieBilco 04/29/20 06:34:31 PM
#432   Ahhh. So I just go buy some of creede 04/29/20 04:10:57 PM
#431   Anyine can buy into them. The warrants are MWM 04/29/20 11:07:10 AM
#430   Gotcha. Very cool mechanism. creede 04/29/20 10:29:09 AM
#429   Shells for the Big Boards... MWM 04/29/20 09:34:39 AM
#428   Fascinating board, MWM. creede 04/28/20 05:38:03 PM
#427   DEAC is now DKNG MWM 04/24/20 10:11:15 PM
#426   Jesus Christ! I've never seen a warrant not MWM 03/27/20 04:12:56 PM
PostSubject