SPAC Merger How It Works and Helps Your Business
The number of companies going public by merging with SPACs has been growing significantly in the last few years. Special purpose acquisition companies (SPACs) are also known as blank-check companies.
Even though SPAC mergers are a popular concept, there are still many different aspects about them that you might not be familiar with. Therefore, the purpose of this article is to explain exactly what a SPAC merger is and how it can help your business.
What is a SPAC Merger?
A SPAC is an entity that has no commercial operations. Instead, its purpose is to facilitate an initial public offering (IPO) and help an organization become a public company.
This occurs when a SPAC acquires or merges with an existing private organization. By doing so, a company can bypass the typically lengthy and hectic traditional IPO process.
It is important to note that SPACs usually do not provide all the information about the target companies to the investors. As a result, SPACs are formed even before a specific target company is selected.
This is the reason why SPACs are also known as blank-check companies, as investors are required to provide funds to the SPAC without having knowledge of the specific merger details.
To ensure the success of this process, experienced and professional experts, such as accounting firms in Singapore, are often involved.
Reason Behind the Rising Popularity of SPACs
There are many different benefits to a company being acquired by or merged with a SPAC. One major advantage is the quicker listing on the public market and the ability to complete the deal swiftly, avoiding the typically lengthy two-year timeline associated with the traditional IPO process.
Furthermore, utilizing a SPAC is significantly less disruptive and labor-intensive compared to conventional IPO efforts.
This streamlined approach allows the organization to generate a substantial amount of capital, ensuring there are ample funds available to support operational growth and facilitate further expansion in the future.
Additionally, the target company gains the opportunity to secure funds in various formats, including flexible capital options like senior debt and convertible preferred shares, among others.
SPACs also offer private company shareholders the chance to obtain a significant percentage of ownership, promoting long-term business growth.
As a result of these benefits and features, the popularity of SPACs has been steadily rising in recent years.
How does a SPAC merger work?
Understanding the three different phases involved in a SPAC merger can provide a clearer picture of the benefits it offers a business. Let’s discuss them one by one:
1. SPAC Formation
The very first step involved in a SPAC merger is the formation of a SPAC or a blank check company. Generally, former executives come together to form a management team, which creates a SPAC using a small amount of capital.
This capital is called the founder shares. Keep in mind that such a shell company exists only on paper and does not have any employees.
Once the SPAC formation is complete, it has to go through an IPO, during which public investors buy about 80% of the SPAC’s shares, while the remaining 20% of the shares are held by the founders.
The cost of a SPAC stock is typically set at $10 per unit, with each unit consisting of one share of common stock and a warrant.
2. SPAC Target Search
After the SPAC formation, it normally takes about 18 to 24 months to identify and finalize a target company for the SPAC merger. The SPAC management team has the flexibility to adjust the timeline if necessary.
However, if a SPAC fails to identify a suitable target company and execute the merger, it undergoes liquidation, and all SPAC investors receive a refund of their money.
Once a potential private company is identified as the target, negotiations ensue to determine the terms and conditions of the merger. It is crucial to ensure the accuracy of all documents, including the financial statements of the target company.
Engaging a professional accounting firm in Singapore can be immensely helpful in this process.
3. De-SPAC merger
The third and final step is the de-SPAC process, which occurs within six to eight weeks after the SPAC successfully acquires or merges with a private company.
All in all
Overall, the SPAC merger provides an excellent opportunity for private companies to go public by merging with shell companies, avoiding the lengthy and traditional IPO process.
One of the significant advantages of going public through a SPAC is the relatively shorter timeline, typically taking around 3 to 6 months compared to the 12 to 18 months required for a traditional IPO.
As a result, both companies seeking to go public and SPACs looking for suitable target companies should strongly consider seeking the assistance of an accounting firm in Singapore.
Expert advice and guidance from professionals in the field can ensure a successful completion of the entire process.