Page 37 - Banking Finance March 2022

ARTICLE

Y Clearing SEC comments and conducting roadshow for team is not allowed to collect salaries until deal is
attracting investors. completed.
Y Identification- of Stock Market for listing (majority of
SPACs list on NASDAQ and NYSE) Other important points in the process
Y Issuing the IPO - When issuing IPO, the management of SPAC IPO
team of the SPAC contracts an investment bank to Y SPACs are not allowed to decide upon its target business
handle the IPO. The investment bank and the at the time of listing in order to avoid compliance and
management team of the company agree on a free to disclosure requirements.
be charged for a service, usually about 10% of the IPO
proceeds. The securities sold during an IPO are offered Y The IPO proceeds will be held in a trust account and
at a unit price, which represents one or more shares of can be used only to fund the business combination or
to redeem shares sold in the IPO in case SPAC is unable
common stock. The prospectus of the SPAC mainly
to complete a business combination within 24 months.
focuses on the sponsors, and less on company history
and revenues since the SPAC lacks performance history Y The target business must have an aggregate fair market
or revenue reports. All proceeds from the IPO are held value of at least 80% of the assets held in the Trust
in a trust account until a private company is identified Account.
as an acquisition target.

Y Acquiring a target company - After the SPAC has Capital Structure of SPAC
raised the required capital through an IPO, the i. Public units
management team has normally 24 months to identify A SPAC floats an IPO to raise the required capital to
a target and complete the acquisition. The period may complete an acquisition of a private company. The capital
vary depending on the company and industry. The fair is sourced from retail and institutional investors, and 100%
market value of the target company must be 80% or of the money raised in the IPO is held in a trust account. In
more of the SPAC's trust asset. return for the capital, investors get to win units, with each

Y Negotiating - for merger or purchase agreement to unit comprising a share of common stock and a warrant to
acquire a business or assets within 24 months. purchase more stock at a later date.
Y Redemption option - Shareholders who do not approve
The purchase price per unit of the securities is usually
of the business combination are given back their full $10.00. After the IPO, the units become separable into
investment via a tender process.
shares of common stock and warrants, which can be traded
Y Raising additional finance, in case of substantial in the public market. The purpose of the warrant is to
redemption by shareholders. For this purpose,forward provide investors with additional compensation for investing
purchase agreements are entered in advance with in the SPAC.
affiliates and sponsors. Debt and Equity may be raised
through other modes like PIPE (Private investment in ii. Founder Shares
Public Equity). PIPE involves issuing shares of a public The founders of the SPAC will purchase founder shares at
company in a private arrangement with a select investor the onset of the SPAC registration, and pay nominal
/ group of investors. PIPE investment happen only after consideration for the number of shares that results in a 20%
a target is identified. ownership stake in the outstanding shares after the
Y Consummation of business combination - The SPAC completion of the IPO. The shares are intended to
and the target business will combine into a publicly compensate the management team, who are not allowed
traded operating company. It is also referred as De- to receive any salary or commission from the company until
SPAC transaction. an acquisition transaction is completed.
Y Where the SPAC fails to achieve business combination
within 24 months, it will be obliged to liquidate and iii. Warrants
redeem 100% of the shares offered subject to certain The units sold to the public comprise a fraction of warrant,
exemptions. When running the SPAC, the management which allows the investors to purchase a whole share of

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