SPAC Product OverviewSpecial Purpose Acquisition Companies, commonly referred to as "SPACs," are newly formed companies that raise equity capital through an initial public offering for the sole purpose of pursuing a business combination in a dedicated industry or geographic location. SPAC offerings are typically sponsored by experienced corporate executives, managers of private equity firms and seasoned entrepreneurs.
The offering is in the form of a unit, comprised of a common share and warrant(s). The offering proceeds are held in escrow in an interest bearing trust account. Immediately following the offering, the SPAC typically has 18 months to announce an acquisition and then an additional six months to receive shareholder approval of the proposed business combination. The sponsors typically receive founder shares or units for 20% of the company, which have value only if an acquisition is completed.
If an acquisition is not completed within the allotted 18 to 24 months, the cash held in escrow is liquidated and shareholders are returned their prorated cash amount. This typically would lead to an investor having 90-100% of their initial investment returned. Currently, SPACs trade on the over-the-counter bulletin board, the American Stock Exchange, and the Alternative Investment Market (AIM), a subsidiary of the London Stock Exchange.
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