Special Purpose Acquisition Companies (SPACs)

SPACs at a glance

Acquisition vehicles over the last 5 years
Raised by acquisition vehicles since 2017
Increase in market value of 2019 acquisition vehicles IPOs

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

  • Units of share (cash shell) and one/two warrants undergo an initial public offering (IPO)
  • Typically, 100% of gross proceeds are held in trust
  • In SPACs, the sponsor subscribes for founder securities (at minimal cost) and purchases additional warrants to make sure they have 'skin in the game'
  • In cash shells, sponsors purchase founder shares that represent the ‘first loss’ capital in case of no acquisition
  • Underwriting fee, portion paid on closing with balance deferred
  • Usually, over-allotment option in favour of underwriter.


Acquisition sourcing

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, raises debt and issues equity to fund acquisition of a selected target:

  • SPACs require shareholder approval: roadshow to shareholders and investors (in SPACs)
  • Cash shells require only board approval (so quicker): boards have a majority of independent directors.
Growing business

The company 'de-SPACs' and becomes a normal operating company.

  • A deferred underwriting fee is paid
  • The business operates under a public listing to create value for investors, alongside sponsors.
Trust liquidation

Liquidation occurs if the business combination is not executed within the agreed timeline:

  • Proceeds returned to shareholders minus expenses (in SPACs, sponsors do not participate in capital return; in cash shells, sponsors are subordinated to public shareholders in capital return).

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