Welcome to our short video about SPACs!
A Special Purpose Acquisition Company, or a SPAC, is a shell company formed specifically to offer a faster route for a private company to go public. Once formed, the SPAC raises cash via an IPO to fund the acquisition of a separate target company. Neither the management team nor the investors know which company it will be. The SPAC’s management team then has a finite period of time to acquire the company, and if they don’t, the money is returned to the investors and the SPAC dissolved.
There are several reasons why SPACs are a faster way to go public than the traditional IPO. They require less SEC oversight, have reduced SEC reporting requirements, and typically don’t have the early investor lockup period associated with the traditional IPOs. SPACS are also popular because of their lower costs and fees.
So, how does the process work?
During the SPAC’s IPO, shareholders typically pay $10 per share and receive a partial warrant in addition to the share purchased. After the IPO, the SPAC’s management team seeks out a company to acquire with the raised funds. When they’ve decided on a company, the SPAC’s shareholders vote on the transaction, and upon their approval, the acquisition can be completed. The operations of the target company become the operations of the completed SPAC, and the merged company is listed as a new entity on a public stock exchange and subject to public company reporting requirements.
As a Pre-IPO investor, be aware that companies you invest in may go public via a SPAC deal. This could be a good opportunity to access your shares faster.
Ready to learn more? Click the link at the bottom of the page to find out the 5 Things Every Investor Should Know Before Investing in SPAC’s.