Special Purpose Acquisition Companies (SPACs)
Special Purpose Acquisition Companies (SPACs) are a convenient way of raising finance for a specific purpose, most usually the acquisition of a third party company. Listing a SPAC on London Stock Exchange is a straightforward step by step process, beginning with an Initial Public Offering (IPO), that allows sponsors to attract a wide range of potential investors interested in generating returns through the acquisition of an attractive company or other asset.
The IPO process
- Capital raise via offering of share and/or warrant
- Typically, the majority of gross proceeds are held in US Treasuries and other money market instruments
- In SPACs, the sponsor subscribes for founder securities and can purchase additional warrants/ordinary shares to make sure they have 'skin in the game'
Post-IPO
The sponsor uses their network and industry knowledge to source a target for acquisition:
- Average fixed period of 24 months to find and complete an acquisition
- Longer timeline facilities may be attractive investments in weaker markets, where multiples are lower and distressed sellers may be more prevalent
The company uses proceeds, and can use debt and further equity issuance to fund acquisition of a selected target:
- SPACs can require shareholder approval if they list on AIM, however shareholder approval is not required on the Standard Segment