SPACs – Investing in Acquisitions,
IPO Capital Raising
Going public on NASDAQ or NYSE, raising capital for acquisitions, participating in gains
SPACs – Investing in Acquisitions, IPO Capital Raising
SPACs – For Investing in Acquisitions, or IPO Capital Raising
Please read more about SPACs and our SPAC services on our dedicated SPACs website.
The setup phase of a SPAC provides remarkable profit perspectives for smaller investors (called “SPAC sponsors”, investment approx. US$ 5 to 15 million and more, depending on the IPO target amount), often ranging at an annual level of 25% during the first two years.
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Read also: Why SPACs hit record in 2019 with 59 IPOs
What is a SPAC?
A Special Purpose Acquisition Company (SPAC) is a company for the purpose of raising so-called blind pool capital from the market through an IPO, aiming to acquire operating businesses, assets, intellectual property and/or technology, generally within a period of max. 24 months.
At the moment of listing and IPO, SPACs are company shells with no business and no assets. Instead, they have a great and viable acquisition strategy and a professional board. These too features are enough to attract institutional investors. But how does that work?
Typically, SPACs aim at raising US$100 – 500 million and more on the first day of IPO, usually from institutional investors such as pension funds and sovereign funds etc. The amount of capital to be raised through an IPO depends on the specific investment strategy and goals, which is often defined as a specific industry, technology, or type of company/ies to be acquired.
Other than the investment strategy and goals, a well selected team of well-known and proven managers of a SPAC are an important factor of motivation for investors during the IPO.
Most IPOs of SPACs are listed on either NASDAQ or NYSE, where 59 SPACs were listed during 2019, raising a total capital of US$ 13,6 billion. 15 SPACs were listed during 2018 at the London Stock Exchange, raising a total of US$2,15 billion.
There is a good reason that institutional IPO investors pour in the hundreds of millions on the day of IPO. Their money provided on the IPO is not directly paid to the SPAC but is kept on a trust account and can only be used for acquisitions. The SPAC Board will need to seek the institutional investors’ approval of a proposed acquisition. If an institutional investor does not approve a proposed deal, he will withdraw its funds on trust account. Therefore, the institutional investors do not step into big risk when purchasing a SPAC’s listed shares during the IPO.
Private companies acquired by a SPAC typically become fully or partly listed companies, through reverse mergers. The acquired company gets merged into the SPAC company and thus becomes listed. In the SPAC world, this is called a business combination, and from the perspective of the SPAC it is called “de-SPACing”.
Typical (simplified) setup stages of a Special Purpose Acquisition Company (SPAC):
- A group of experienced experts develops the (post-IPO) investment concept for a SPAC and secures the participation of well-known experienced managers with proven track records, often industry veterans, private equity sponsors or other experts from the finance industry, who will leverage their expertise to raise capital to acquire and then to operate, a new public company (the SPAC).
- One or more sponsors are willing to sponsor the Special Purpose Acquisition Company until its IPO. Generally, SPACs can raise capital during the IPO of up to 20 times of the initial funds provided by the sponsor(s). If the (post-IPO) investment concept of a SPAC requires, for example, US$ 250 million for pre-defined acquisitions, the total engagement of the sponsor(s) must not be less than US$ 12,5 million.Sponsors may participate as individuals or with their own companies. Furthermore, a group of sponsors may be bundled under the umbrella of a Registered Alternative Investment Fund with a Limited Number of Persons (RAIFLNP), and thus act collectively.
- In return for his initial financing of a SPAC, the sponsor typically will receive around 20% of the SPAC’s shares, which will substantially raise in value after the IPO.Sponsors’ funds are paid to an escrow account held for the SPAC. Should the SPAC’s IPO fail, sponsors’ funds will be paid back.In addition to the initial funding of a SPAC, sponsors bear the setup and running cost of a SPAC, until its IPO. This amount is typically around US$ 750 to 800 thousand. In case the IPO of a Special Purpose Acquisition Company fails, the setup and running cost are not refundable and thus lost.
- Once the sponsor(s) have committed themselves and made their payments (in four consecutive stages during the setup and running of the SPAC until its IPO), the Special Purpose Acquisition Company will get listed for the IPO.Financial advising, listing and IPO are carried out by specialised banks in the US. The by-far most successful specialised bank is I-Bankers Securities Incorporated in New York, which participated in 47% of all US SPACs in both 2018 and 2017 and successfully acted as underwriter of 100 SPAC IPOs in total.
- After the envisaged capital has been raised during the IPO, a SPAC has normally up to 24 months to acquire operation businesses, assets, intellectual property and/or technology, as per its pre-defined acquisition goals.
SPACs Insider Knowledge:
- SPACs – A way for companies to grow
- SPACs – Acquisition Strategies Offering Flexibility
- SPACs – Forming the right Board of Directors
- SPACs – Potentially high gains and returns for sponsors
- SPACs – Step-by-Step – from the Sponsor to IPO to Acquisitions
- SPACs Appear COVID-19 Resistant
- Why SPACs hit record in 2019 with 59 IPOs (14/01/2020)
- The HEIDI SPAC: Smart Energy with Blockchain Technology and Artificial Intelligence (03/08/2019)
- PHARMA CBD SPAC LENUS (02/08/2019)
- RAETI FINANCIAL SERVICES SPAC (Feb 2020)
What we can do for you
Your SPAC idea and concept
Shanda Consult and its partner network can advise you on the business structuring of a SPAC and to introduce you and your SPAC idea and concept to the right parties, including I-Bankers Securities Incorporated in New York as financial advisors and underwriters for the eventual IPO.
Interested to setup up a SPAC or to invest as a sponsor?
Should you be interested in getting involved as a sponsor of an SPAC, we will be happy to present you “ready-made” SPAC concepts from various industries, which top-class management teams ready and post-IPO investment strategy and specific goals defined.