What is SPAC?
What is a SPAC?
- Special Purpose Aquisition Companies, better known as SPACs, are investment vehicles, with no previous operating activites, set up by a team of promoters (“Sponsors”) with the aim of raising capitals through an initial public offering (“IPO”) and subsequently deploy them to acquire and/or merge (“Business Combination”) with a private company (“Target”), which as a result of the Business Combination will be listed on the stock exchange.
- The Sponsors, which are the management team of the SPAC, are professional of the financial environment, with a significant track-record, able to attract capital from investorsa, even though the company has no previous operating activities. They invest their own capital to finance initial set-up and IPO costs, and then in the context of the IPO, they subscribe special shares, granting some benefits, that are the remuneration for the team of promoters.
- The funds raised through the IPO are deposited in an escrow account, and from that moment the Sponsor have around 24 months to select the Target and to complete the Business Combination with it.
- Once the Target is selected by the Sponsors, a general meeting of the SPAC shareholders is convened to decide wether to approve or not the Business Combination. Those investors who voted against the approval and those who abstained from the vote, can exercise the “Withdrawal right” that allows them to withdraw from their investment and to get back the capital invested.
- If approved, the Business Combination will proceed with the acquisiton of a stake in the Target by the SPAC and eventually with a subsequent merger of the Target into the SPAC, that changes its business name with that of the Target, which becomes a full-fledged listed company.