In a traditional IPO, the underwriters typically receive a discount of 5%-7% of the gross IPO proceeds, which they withhold from the proceeds that are delivered at closing. SPAC IPOs have an unusual structure for the underwriting discount. Both, however, are 15% of the base offering size. The over-allotment option in traditional IPOs (commonly referred to as a “green shoe” or just the “shoe”) typically extends for 30 days from pricing, while the option in SPAC IPOs typically extends for 45 days. On the other hand, the De-SPAC transaction involves many of the same requirements as would be applicable to an IPO of the target business, including audited financial statements and other disclosure items which may not otherwise be applicable if the target business were acquired by a public operating company. From the decision to proceed with a SPAC IPO, the entire IPO process can be completed in as little as eight weeks. In essence, the IPO registration statement is mostly boilerplate language plus director and officer biographies.Īs a result, the SEC comments are usually few and not particularly cumbersome. There are no historical financial results to be disclosed or assets to be described, and business risk factors are minimal. SPAC financial statements in the IPO registration statement are very short and can be prepared in a matter of weeks (compared to months for an operating business). If the business combination is approved by the shareholders (if required) and the financing and other conditions specified in the acquisition agreement are satisfied, the business combination will be consummated (referred to as the “De-SPAC transaction”), and the SPAC and the target business will combine into a publicly traded operating company.Ĭomparison to Operating Company IPO ProcessĪs compared to operating company IPOs (referred to herein as “traditional IPOs”), SPAC IPOs can be considerably quicker. Following the announcement of signing, the SPAC will undertake a mandatory shareholder vote or tender offer process, in either case offering the public investors the right to return their public shares to the SPAC in exchange for an amount of cash roughly equal to the IPO price paid. In advance of signing an acquisition agreement, the SPAC will often arrange committed debt or equity financing, such as a private investment in public equity (“PIPE”) commitment, to finance a portion of the purchase price for the business combination and thereafter publicly announce both the acquisition agreement and the committed financing. If the SPAC needs additional capital to pursue the business combination or pay its other expenses, the sponsor may loan additional funds to the SPAC. After the IPO, the SPAC will pursue an acquisition opportunity and negotiate a merger or purchase agreement to acquire a business or assets (referred to as the “business combination”). Offering expenses, including the up-front portion of the underwriting discount, and a modest amount of working capital will be funded by the entity or management team that forms the SPAC (the “sponsor”). The IPO proceeds will be held in a trust account until released to fund the business combination or used to redeem shares sold in the IPO. Securities and Exchange Commission (“SEC”), clearing SEC comments, and undertaking a road show followed by a firm commitment underwriting. From the beginning of 2014 through November 30, 2017, almost 80 SPAC IPOs have closed, raising approximately $19 billion in gross proceeds.Ī SPAC will go through the typical IPO process of filing a registration statement with the U.S. Special Purpose Acquisition Companies (“SPACs”) are companies formed to raise capital in an initial public offering (“IPO”) with the purpose of using the proceeds to acquire one or more unspecified businesses or assets to be identified after the IPO.
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