What is a SPAC, and how does it work?
Special Purpose Acquisition Companies (SPACs) have managed to attract a lot of attention from many companies, business owners, and organizations that want to go public. Nowadays, SPACs are largely believed to be a reliable and efficient alternative to the traditional initial public offering (IPO).
A SPAC (Special Purpose Acquisition Company), sometimes called a “blank cheque company,” is a business entity formed with no commercial operations. Its sole purpose is to raise capital through an Initial Public Offering (IPO) and then merge with or acquire another company.
SPACs have gained significant attention in the United States and other financial markets as an alternative route to becoming a publicly listed company. In recent years, regulators in Singapore and Malaysia have also looked at SPAC structures as part of their capital market development.
However, choosing between an IPO or SPAC can still be challenging if you are not fully familiar with the basics of a SPAC and how it works. In this regard, professional pre-IPO advisory services can assist companies in determining whether they are ready to go public.
What is a SPAC?
A SPAC is basically a shell company created by investors with the sole intention of obtaining capital via an IPO in order to later purchase another business.
A SPAC does not produce any goods and does not engage in any economic activity. In actuality, the SPAC’s sole resources are often the funds acquired via its own IPO. A group of institutional investors often establishes or sponsors a SPAC.
Why are SPACs becoming popular?
There are a few reasons behind the current surge in popularity of SPACs.
For starters, private businesses have remained private for longer. Due to wealthy investors like SoftBank and Tiger Global Management, who distribute $100M+ rounds, delaying IPOs while increasing the availability of late-stage private firms, many VC-backed companies have had easy access to funding.
Moreover, SPACs have become a more convenient route to the public markets, especially when the circumstances for a mature company’s launch are favorable.
The Covid-19 epidemic has also caused market concern. Private enterprises have needed access to funding throughout the epidemic but have been less certain they would be able to raise significant amounts in the near future. For liquidity, some have gone to the open markets.
The typical IPO, however, could be less appealing given the volatility of public markets since companies have less control over how much money they can raise. The standard IPO also takes years to execute.
Therefore, some businesses are looking at quicker options to go public. Therefore, sponsors and investors are using this chance to offer companies an extra choice, at a higher cost.
Audit firms in Singapore help organizations deal with such uncertainties. Their pre-IPO advisory experts thoroughly analyze your business to determine whether it is ready to go public by forming a SPAC.
How a SPAC Works – Step by Step
1. Formation of the SPAC
A group of sponsors (experienced investors or industry experts) sets up the SPAC.
The SPAC is typically listed on a stock exchange with a nominal business purpose.
2. IPO Stage
The SPAC raises funds from public investors through an IPO.
Funds raised are placed in a trust account until a merger or acquisition is finalised.
3. Identifying a Target Company
The SPAC sponsors search for a private company with growth potential.
Investors do not usually know the target company at the time of the IPO.
4. Merger or Acquisition
Once a target is identified, the SPAC merges with or acquires it.
The private company then becomes a publicly listed entity through the SPAC.
5. Investor Approval
Shareholders of the SPAC vote on the proposed merger.
Investors who disagree can redeem their shares for cash held in the trust.
Key Features of SPACs
The following are the key features of SPACs.
Stability
The share price of the company is uncertain in a normal IPO. Along with the company’s underlying business value, it is influenced by market dynamics, investor demand, and investor appetite.
Even though the IPO process takes months, a company doesn’t know how much money it will generate until the day of the IPO.
Additionally, the IPO bankers, who estimate the company’s value in the view of investors, set the typical IPO price. The IPO can be overpriced since nothing is ever perfect. A SPAC transaction is desirable since it completely eliminates pricing uncertainty.
However, a new development has alarmed the market: SPACs are seeing steadily higher rates of share redemption, in which institutional investors withdraw funds from transactions before the merger is complete.
Speed
The typical IPO process might take years to complete. The target company’s SPAC merger procedure may be completed in as little as 3 to 4 months. For businesses trying to obtain capital and swiftly go public, this is appealing.
Despite having to fulfill all the same filing standards as a conventional IPO, the time constraint means the company must be ready to go public significantly faster.
This covers financial reporting, supervision by tax authorities, tax preparation, technological advancements, cybersecurity precautions and more. The process becomes efficient and quicker with the help of audit firms in Singapore.
Strategic Development
The strategic SPAC has evolved into a standard pitch for certain IT businesses that want to go public quickly, even though not every SPAC intends to be a strategic partner to the company it takes public.
Strategic SPACs market sponsor expertise and experience to prospective businesses. For instance, if the sponsor is a group of EV investors or operators, an electric vehicle company may find a SPAC offering more interesting, particularly if the sponsor intends to join the board and collaborate with the management team on post-IPO strategy.
In this approach, the strategic SPAC fulfills a similar function to venture capital for private investment: the company gains from both the investment and the investor, in addition to the investment itself.
Why Businesses Consider a SPAC IPO
For some companies, especially fast-growing ones, a SPAC provides an alternative pathway to the stock exchange.
Faster Process: Traditional IPOs can take 12–18 months. A SPAC listing may shorten this timeline.
Access to Capital: SPACs raise significant funds upfront, offering immediate capital for expansion.
Experienced Sponsors: SPAC sponsors often bring industry expertise, strategic advice, and credibility.
Flexibility in Deal Structuring: Mergers allow companies to negotiate valuation and deal terms more flexibly than in a traditional IPO.
SPACs in Singapore and Malaysia
Singapore:
The Singapore Exchange (SGX) introduced a SPAC framework in 2021. Key rules include:
Minimum market capitalisation of SGD 150 million.
SPACs must complete a business combination within 24 months (with a possible 12-month extension).
Shareholder approval is required for acquisitions.
This regulatory framework aims to balance market innovation with investor protection.
Malaysia:
Bursa Malaysia first introduced SPAC listings in 2009. A few companies successfully listed, but many struggled to secure acquisitions within the time frame, leading to refunds to shareholders. The limited success of early SPACs led to a more cautious approach in Malaysia.
Pros and Cons of SPACs
Advantages:
Quicker route to public listing.
Potentially lower costs compared to traditional IPOs.
Access to reputable sponsors and their networks.
Greater certainty around valuation at the time of merger.
Risks and Challenges:
Investors do not know the target at the time of IPO.
Potential for conflicts of interest between sponsors and investors.
Regulatory scrutiny remains high, particularly after high SPAC activity in the US.
If no acquisition is completed within the allowed timeframe, investors may only receive their initial capital back, often without significant return.
Difference Between a SPAC and a Traditional IPO
| Aspect | SPAC IPO | Traditional IPO |
|---|---|---|
| Purpose | Raise funds first, then find a target company. | Company itself raises funds to expand its own operations. |
| Timeline | Typically 6–12 months. | Often 12–18 months or more. |
| Valuation | Negotiated during merger. | Determined during IPO pricing. |
| Risk to Investors | Target company unknown at IPO stage. | Company’s performance and financials are disclosed upfront. |
Who Should Consider Going Public via a SPAC?
A SPAC route may be attractive if your business:
Plans rapid expansion into international markets.
Seeks significant capital but wants to avoid lengthy IPO processes.
Operates in industries attractive to SPAC sponsors (e.g., technology, renewable energy, healthcare).
However, businesses must weigh the benefits against the regulatory, reputational, and operational risks.
How TY TEOH Can Help
At TY TEOH International, we provide advisory and accounting services to help businesses evaluate whether a SPAC listing is the right strategy.
Our team supports:
IPO Readiness Assessments
US GAAP / IFRS Conversions
Financial Reporting & Compliance
Cross-border Tax & Audit Advisory
Whether you are exploring a SPAC in Singapore, Malaysia, or another jurisdiction, our professionals can guide you through regulatory requirements and ensure your business is well-prepared for global capital markets.
👉 Contact Us today to discuss your IPO or SPAC journey.
FAQs About SPACs
SPAC stands for Special Purpose Acquisition Company.
Typically 18–24 months, depending on exchange rules.
Yes, SGX introduced a SPAC framework in 2021 with defined requirements for listing.
Funds are returned to shareholders, usually with minimal or no profit.
Both involve risks. While SPACs offer speed and flexibility, investors face uncertainty as targets are not disclosed upfront.
Final Takeaways
These characteristics of SPACs show why they have become popular all over the world and are attracting a significant amount of investment from investors and businesses. Ultimately, using a SPAC to go public is a reliable and quicker alternative to the traditional IPO.
If you are still confused about these processes, contact a professional audit firm in Singapore for pre-IPO advisory services and make smart decisions throughout these procedures.
