Special Purpose Acquisition Companies (SPACs)

SPACs at a glance

50+
Acquisition vehicles over the last 5 years
$2bn+
Raised by acquisition vehicles since 2017
30%
Increase in market value of 2019 acquisition vehicles IPOs

Special Purpose Acquisition Companies (SPACs) are a convenient way of raising finance for a specific purpose, most usually the acquisition of a third party company. Listing a SPAC on London Stock Exchange is a straightforward step by step process, beginning with an Initial Public Offering (IPO), that allows sponsors to attract a wide range of potential investors interested in generating returns through the acquisition of an attractive company or other asset. 

The IPO process

  • Units of share (cash shell) and one/two warrants undergo an initial public offering (IPO)
  • Typically, 100% of gross proceeds are held in trust
  • In SPACs, the sponsor subscribes for founder securities (at minimal cost) and purchases additional warrants to make sure they have 'skin in the game'
  • In cash shells, sponsors purchase founder shares that represent the ‘first loss’ capital in case of no acquisition
  • Underwriting fee, portion paid on closing with balance deferred
  • Usually, over-allotment option in favour of underwriter.

Post-IPO

Acquisition sourcing

The sponsor uses their network and industry knowledge to source a target for acquisition:

  • Average fixed period of 24 months to find and complete an acquisition
  • Longer timeline facilities may be attractive investments in weaker markets, where multiples are lower and distressed sellers may be more prevalent
M&A

The company uses proceeds, raises debt and issues equity to fund acquisition of a selected target:

  • SPACs require shareholder approval: roadshow to shareholders and investors (in SPACs)
  • Cash shells require only board approval (so quicker): boards have a majority of independent directors.
Growing business

The company 'de-SPACs' and becomes a normal operating company.

  • A deferred underwriting fee is paid
  • The business operates under a public listing to create value for investors, alongside sponsors.
Trust liquidation

Liquidation occurs if the business combination is not executed within the agreed timeline:

  • Proceeds returned to shareholders minus expenses (in SPACs, sponsors do not participate in capital return; in cash shells, sponsors are subordinated to public shareholders in capital return).

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