How does a Special Purpose Acquisition Company (SPAC) function?
Special Purpose Acquisition Company (SPAC) is a familiar term among entrepreneurs and organizations that want to go public.
If you want to learn what SPAC is and how it works, you are at the right place. In this article, we will explore the various aspects of SPAC and discuss how companies can use the services of accounting firms in Singapore to go through this process.
Let’s start with some fundamentals.
What is a SPAC?
A special purpose acquisition company, or SPAC for short, is sometimes known as a “blank check” corporation. SPACs exist to buy or combine with promising private businesses, which would thereafter take such businesses public without the necessity for an IPO (Initial Public Offering).
However, investors in a SPAC are unaware of the names of the target firms. In other words, investors are signing a “blank check” when they invest in an unidentified business.
The concept of forming SPACs has been present for a few decades now. However, there has been a massive spike in their popularity.
The Basic Purpose of SPACs
The basic purpose of SPACs is to allow companies to go public. Compared to a standard initial public offering, SPACs are a flexible and less onerous way for a private business to list on the stock market (IPO).
They are popular with private business executives because they can sell more shares than they could in a standard float and avoid the lengthy lock-up periods that are often necessary for an IPO.
Going the SPAC route might be advantageous for a private business with plans to go public for a variety of reasons. The availability of financing and operational skills that a SPAC offers is foremost among them.
Companies can typically rely on the professional services of an accounting firm in Singapore to use a SPAC for going public.
Additionally, using a SPAC to go public is far less costly. A private firm often goes public via an IPO, which may be quite expensive. Moreover, a SPAC arrangement has a far shorter schedule for becoming public than an IPO, primarily because there are fewer regulatory requirements.
A private firm may overcome these barriers by merging with or being bought by a SPAC, which is already publicly traded.
How do SPACs work?
When a person or a group of people undergoes the IPO procedure with the intention of making investments in a certain field, a SPAC is created.
An industry like health care, a category of the economy like emerging markets, or a mix of two or more investment spheres might constitute this.
The important thing is that when the IPO process is described and subsequently sold to investors, there is an emphasis on the general areas in which the SPAC wants to invest rather than the details.
The SPAC attracts investors by pricing its shares at a fair amount, often $10, and providing additional incentives.
The corporation then has a certain period of time (often two years) to put the investors’ money to use by finding a suitable target (a private company) for merger or acquisition. SPACs are essentially funds seeking to invest in a potential private firm.
When the private corporation is listed on the stock market under the SPAC’s symbol, also known as a ticker, it certifies the SPAC’s existence and enables it to be publicly traded. If this is not done, the SPAC will be liquidated, and the investors’ money will be refunded.
The PCAOB accounting standard and the role of PCAOB can be divided into four main activities as follows:
SPACs come with risks for investors, just like any investment. SPAC management teams often comprise professionals, most of whom have solid investing backgrounds.
However, if the SPAC management lacks knowledge of the target company’s market niche, it can cause some unfavourable effects on both the target company and its shareholders.
The scarcity of information about the target private company is a further cause for worry. These organizations are not required to provide financial information, which may cause deception.
When the private company joins the SPAC, it will be necessary for it to disclose its financial information.
However, it could be too late for the early SPAC investors. Unlike a business that goes public via an IPO, a SPAC target company is also permitted to estimate future profitability, which may deceive investors.