SPAC is the acronym for Special Purpose Acquisition Companies. These have become the current talk of the town, and they are gathering too much attention in almost every corporate, boardroom, media, and Wall Street. However, they are trending for a good reason SPACs have offered the best alternative to the old-fashioned IPOs that have been in existence for the most extended period now. IPOs have existed for the most prolonged period ever; they were introduced to make it easy to introduce another company by selling shares. However, the SPAC research conducted by our team is here to talk about SPACs.
Here are the essential things you should know about SPACs:
What is SPAC?
The most frequently asked question is; what is SPAC? As mentioned earlier, these are the acronyms for Special Purpose Acquisition Companies which is also referred to as the blank check company. It is an exterior corporation included on the stock of exchange mainly to acquire a private company and make it public direct without going through the lengthy traditional procedures of the initial public offering. It allows companies to merge or ultimately acquire them to the public from private ownership. With SPAC, anyone can be convinced to buy shares and become a shareholder in the given company.
Who are the SPAC Stakeholders?
The SPAC research conducted and even what is on the ground show that SPAC has three significant stakeholders: sponsors, targets, and investors. Each of these stakeholders has unique needs, requirements, and expectations, and they are discussed below:
Who initiates the SPAC process? The sponsors are responsible for initiating this process. They are the prominent people who come up with the idea and decide to invest risk capital from which they do not expect anything until things get better. This risk capital is meant to pay bankers, accountants, and lawyers for the expenses incurred during operation. They are the main stakeholders, and if it happens that they don’t form a combination within the first two years, the SPAC should be dissolved immediately. The sponsors lose everything they invested; however, if it succeeds, they earn shares in the merged corporation of 20% equity of the capital raised by all other investors.
SPAC investors are the people who buy direct shares before the target company has been identified. Investors are required to put all their trust in sponsors who should not be held accountable for anything that can happen in future concerning size, industry, or valuation. Investors get two securities, that is, common stock and warrants.
SPAC mainly targets start-up companies that have gone through venture capital. Most firms at this stage have various options concerning IPOs, such as conducting direct IPO listing, selling their firm to other private or public companies, raising additional capital, pursue traditional IPO, among other options. This is where SPACs comes in and acquires the company making the target the third group of stakeholders.
The various SPAC research available shows the main stakeholders and exactly SPAC; with its growing popularity, it is essential to know these things. The above are the essential things you need to know and understand before you take a step to do anything.