Special Purpose Acquisition Company (SPAC) is a public trading company that raises its resources from an initial public offering (IPO) aimed at acquiring a new existing company. Resources raised through IPO of a Special Purpose Acquisition Company (SPAC) are put on the trustee’s hands until SPAC research identifies its merger or opportunity to engage the invested resources. The shares of a SPAC are sold relatively cheap. The sold shares include one common share stock and a warrant conveying right purchase additional or partial shares.
Special Purpose Acquisition Companies amalgamate very experienced management teams such as industry veterans and financial experts who leverage their experience and collect capital aimed at acquiring and operating a new company. Within a year, SPAC must find an enduring corporate company to run, and once the prospected transaction is complete, a new public trade company is formed as a result.
SPACs form part of vast unions and acquisition market, and as such, they can be used to influence the purchasing of private or public companies. Like an initial public offering in the public market, they need a formidable planning cycle primarily lead by guaranteed investment banks.
Structure of a SPAC
SPAC is formed from the initial public offering (IPO). A SPAC bears the same standards of market issuance stipulated in the Securities Act of 1934. However, they have peculiar features. The co-founder of SPAC may have varied features but must be either public or private entity managers. Public companies may have an interest in SPAC for complementing their services. On the other hand, private asset managers may consider SPAC offering as a management strategy. During the formation of a SPAC, the co-founder has several targets of which the primary goal is to raise funds purposely for acquisition.
Approaching an investment bank is the beginning point of a SPAC planning process. The investment bank charges about 10% fee of the IPO proceeds for their services. The chosen investment bank acts as a leader in the SPAC acquisition process, which includes preparing and IPO documentation filing, structuring capital raising conditions, and pre-marketing investment offering to the interested investors. Generally, with the IPOs, the investment bank takes some interest while providing the incentive capital depending on the performance of the IPO.
Capital generated from SPAC IPO is deposited in the trust accounts with the expenses and the underwriting fee catered by the co-founders, on the completion of the SPAC offering, the management team has a specific period usually 24 months to pinpoint appropriate acquisition target and complete the acquisition. If the deal goes through, SPAC management and shareholders extract profits from owning the common stock and warrants. The stockholders are as well accorded equity ownership in the company through the process of transformation. Failure to complete the acquisition process within the set time, then dissolving the SPAC becomes the only alternative, and the resources contributed prior returned to owners or investors.
SPAC Market Reviews
Normally, a SPAC is considered as an IPO of the company to be renamed later. A SPAC is a blank agency that acquires its resources from the IPOs aimed at purchasing a new company. Special Purpose Acquisition Company research is a significant financial market source of information. The critics of SPCs argue that they are nothing but vehicles for investment banks to raise the fee and efficiently transfer risks to investors in entirety. Advocates of SPACs, on the other hand, argue that they serve an integral part in advancing new corporates and technologies.
In conclusion, a special purpose acquisition company are formed through IPO funds and are started by a team of experts. The funds are aimed at purchasing a new company within the specified period.