SPAC
A special purpose acquisition company (“SPAC”) is a shell company aimed at taking companies public without going through the traditional initial public offering process.
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The SPAC will go public as a shell company, which will commence its search for potential acquisition targets to acquire and bring them public on the stock market through the merger of the SPAC and the target.
Benefits of SPAC
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The IPO funds raised are placed into a trust or escrow account until the time of a potential business combination occurs.
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Investors also hold the right to vote on potential business combination targets and can choose to redeem their public shares.
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The SPAC generally provides investors with liquidity as they will be able to freely sell their shares in the open market anytime, or, if no target is identified or approved by shareholders within 24 months after listing, before SPAC liquidation.
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In a typical SPAC IPO, the investors are given warrants along with the shares of the SPAC. This allows the investors to purchase additional shares of the merged company upon the completion of the acquisition of the target company.
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The sponsors of the SPAC would also help to ensure better pricing and/or deals as the sponsors normally will have expertise in the industry the target company operates in.
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It will be faster and simpler for a target company to go public via the SPAC route as compared the traditional IPO route.