A special purpose acquisition company (SPAC), which formally known as “development stage company,” is a collective investment scheme that allows public stock market investors to invest in private equity type transactions, particularly leveraged buyouts. SPACs are shell or blank-check companies that have no operations but go public with the intention of merging with or acquiring a company with the proceeds of the SPAC's initial public offering (IPO).
The time and effort required to consummate an initial public offering via traditional means continues to grow. As private companies are finding it harder to access capital in the public market, the opportunity to become a public company through an extremely clean public shell has become more attractive and cost effective.
In recent years, with increased regulation by the Securities and Exchange Commission (SEC) following high-profile abuse cases, SPACs have begun to proliferate in various industries. The SPAC approach sometimes makes it possible for companies to go public when they cannot afford to do so by traditional means. The SPAC alternative can also be attractive when credit is tight. Unique investment opportunities exist through SPACs with defined acquisition goals.
With special purpose acquisition, it provides a private company with the option of accepting stock versus cash in a transaction and thus avoiding tax requirements. The target company is also able to immediately become a public company without the risk, expenses and time associated with the IPO process. In addition, by selling to a SPAC versus selling to another public buyer, there is no merger process as the company would continue to be a standalone company. Current management would stand a better chance of continuing to run the company themselves, whereas if it were bought by a competitor, management would be competing with the acquirer's management team.
Special Purpose Acquisition - Procedure
1. Filing of Registration Statement;
2. Mode of Offering of Securities;
3. Listing of IPO;
4. Search for Prospective Buyers;
5. Due Diligence of Identified Companies;
6. Merger & Acquisitions;
7. Shareholders’ Approval for Prospective Business Combination;
8. Successful Business Combination.
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