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Special-Purpose Acquisition Company

Release date : 2020/01/10

Special-Purpose Acquisition Company ( SPAC) is one of the services that TRSD capital is providing for its clients. here is an article about SPAC investment instrument which is provided by our education center.

What is a Special Purpose Acquisition Company – SPAC?

A special purpose acquisition company (SPAC) is a publicly-traded company that raises a blind pool capital through an initial public offering (IPO) for the purpose of acquiring an existing company. The money raised through the IPO of a SPAC is put into a trust where it is held until the SPAC identifies a merger or acquisition opportunity to pursue with the invested funds. Shares of a SPAC are typically sold in relatively inexpensive units that include one share of common stock and a warrant conveying the right to purchase additional shares or partial shares.

Understanding Special Purpose Acquisition Company

Broadly, SPACs are part of the vast mergers and acquisitions market. They can be used by public and private companies as a tool for buying an acquisition target. As an IPO offering in the public market, they require a robust planning cycle that is typically led by an underwriting investment bank.

Structuring of a SPAC

A SPAC is formed from capital raised in a public IPO. As a publicly-traded stock, a SPAC is held to the same standards of market issuance, detailed primarily in the Securities Act of 1934. However, as a SPAC, the offering has its own unique characteristics.

To begin the SPAC planning process, founders usually approach an investment bank to manage the IPO. The investment bank charges a fee, typically about 10% of the IPO proceeds, for its services. The chosen investment bank leads the SPAC process which includes structuring the capital raising terms, preparing and filing IPO documentation, and pre-marketing the investment offering to interested investors. As with all IPOs, the investment bank may also take an interest in the offering or provide incentive capital based on IPO performance.

The capital raised from a SPAC IPO is deposited in a trust account. Expenses and underwriting fees are typically covered by the founders. Once a SPAC offering has been completed, the management team then has a specified period of time, usually 24 months, in which to identify an appropriate acquisition target and complete the acquisition. If such a deal is made, shareholders and management of the SPAC profit through ownership of the common stock and any warrants. Stockholders are also given equity ownership in the new company through a transformation process. If an acquisition is not completed within the specified time period, then the SPAC is automatically dissolved and the money held in trust is returned to investors.

Market Views

A SPAC can be looked at as an IPO of a company to be named later. A SPAC is a shell or blank check company that first raises money through its IPO to acquire an unspecified target company and then seeks out a company to purchase.

Critics of SPACs charge that such entities are nothing more than vehicles for investment banks to generate fees and that SPACs effectively transfer risk almost totally onto investors. Advocates of SPACs argue that they serve an important function in advancing new businesses and technologies.

SPAC Listings

SPAC Research is one of the financial market’s leading sources for SPAC information. In their April 2018 article, A Primer on SPACs, they detail SPAC IPOs from 2015 to 2017. In one example cited, Silver Run Acquisition Corporation was a SPAC that acquired Centennial Resource Production, LLC, an oil and gas company with primary operations in the Delaware Basin. Following the acquisition and transformation process, the newly named Centennial Resource Development Corp. was one of the best performing issues from the study period with a 146.73% annualized return.

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