What To Consider When Using A SPAC To Go Public
Many seasoned management teams and sponsors now opt to take their companies public through special purpose acquisition companies (SPACs). A SPAC acquires money via an initial public offering (IPO) with the goal of purchasing an already-running company.
Instead of conducting its own IPO, an operational business may thereafter combine with (or be bought by) the publicly traded SPAC and become a listed company.
Pre-IPO advisory services from professional audit firms in Singapore can help you with the process easily. Let’s discuss SPACs thoroughly and the important factors to consider when taking your company public via a SPAC.
What Is a SPAC?
A shell business called a SPAC pools investor funds before deciding how to use them. As it has no operational history to report, the SPAC goes public rapidly (in a couple of months as opposed to a regular IPO, which may take over a year).
After becoming public, the SPAC seeks a company that also wants to go public, and the two merge—a process known as de-SPAC-ing. The SPAC’s stockholders now own a tangible asset.
Formation and Structure of SPACs
A professional management team or a sponsor often forms a SPAC within a limited budget. A share of common stock plus a portion of a warrant, such as a half or third of a warrant, make up each unit.
With the exception of the fact that founder shares often have the exclusive power to elect SPAC directors, founder shares and public shares normally have comparable voting rights.
In general, holders of warrants do not have the ability to vote, and only fully paid warrants may be exercised.
Setting the target/operating company’s value in direct negotiations with the SPAC sponsors is one of the main potential benefits of a SPAC transaction.
In a conventional IPO, valuations are influenced by investor meetings (TTW and roadshow), advice from investment bankers, previous financing rounds, comparable offerings, etc., but they are also subject to significant fluctuations depending on when the window for the offering opens and the general state of the market at the time.
Companies have seen high-growth, high-demand companies post less-than-stellar IPO prices due to a number of uncontrollable reasons, such as the market being significantly down on the day they priced, a rival company raising funds at the same time, or a dozen others.
In a SPAC, you negotiate the target’s value, which is often fixed at that sum through the transaction’s conclusion. Generally, when you hire an audit firm in Singapore for pre-IPO advisory services, you are able to get help from the experts in understanding all of the critical market conditions.
The target companies are recommended to take into account the general market response and trading outcomes when negotiating pricing with SPACs and PIPE investors since a number of deSPAC transactions where stock pressure after the announcement has led to value changes before closure.
It is not true that SPAC IPO is a method for a company to go public that isn’t otherwise ready for a standard IPO. The fact is thorough planning is also needed in using a SPAC to go public.
A target business in a SPAC merger will often have a shorter timeframe than with a standard IPO to be ready for going public while still undergoing roughly the same planning, due diligence, prospectus writing, SEC involvement, and oversight.
Cross-functional areas like accounting and financial reporting, finance effectiveness, financial planning and analysis, tax issues, internal controls and internal audit, human resources (HR) and compensation, treasury, enterprise risk management, technology, and cybersecurity should all be covered by a target company’s public company readiness program.
Lock-up periods for pre-IPO advisory typically range from 180 days for conventional IPOs to occasionally shorter periods for staggered or performance-based early releases. The target business holders are often required to sign a 180-day lock-up in SPAC deals as well.
However, because the PIPE investors and the SPAC sponsors are subject to distinct lock-up periods, the factors that would be most sensible are often different.
In order to align interests, the majority of SPAC sponsors will be subject to a one-year lock-up, which might result in shares of the combined company being released onto the market in stages following the merger.
Companies should be careful when talking to their financial advisors about how many more shares will enter the market and any potential effects on the volatility of the public company’s trading.