RE: SPAC - how could this work?22 Nov 2020 19:32
Here are the basics of the SPAC process, as it applies once a SPAC business idea has been defined and the SPAC’s acquisition strategy has been outlined:
Step 1: One or more pre-IPO Sponsors will pay for the initial setup costs and commit the SPAC’s sponsor capital, which is 5.1% of the planned IPO proceeds. The costs to set up the SPAC and conduct the first roadshow (pre-IPO) will be around $800,000 USD, with 5.1% of the planned IPO proceeds as sponsor capital added to that amount. About two thirds of the setup costs need to be paid prior to the IPO, while the last third will be covered from the IPO proceeds. Setup costs paid will be refunded to the paying sponsor from the IPO proceeds.
Step 2: The SPAC will be incorporated as a company, typically as an LLC.
Step 3: The Company will apply to the Securities and Exchange Commission (SEC) in the USA for S1, also known as the prospectus. This will detail the SPAC’s shareholders, board members, its acquisition strategy and statutory information.
Step 4: The pre-IPO sponsors are now able to deposit the necessary funding into the SPAC’s trust account, typically held by a lawyer. In return for their pre-IPO investment, sponsors receive founder shares. Founder shares will be converted into listed common shares on the day of IPO, typically in a ration of 1:1.225 to 1:1.25.
Step 5: The S1 that was filed with the SEC gets approved, and the SPAC is now ready for listing at a stock exchange and for IPO, provided that the sponsor capital has been paid into the trust account.
Step 6: The investment bankers or other investors will organize roadshows to promote the SPAC. The goal of this is to attract large institutional investors to participate in the IPO of the SPAC. The CEO and CFO of the SPAC typically participate in these roadshows, together with a high-rank manager of the underwriting bank.
Step 7: As a result of the roadshows, institutional investors or similar, sophisticated investors are ready to commit capital to buy shares in the SPAC at its IPO.
Step 8: The SPAC will be listed on the NYSE or NASDAQ (or other stock exchanges; double listing is also possible) by the underwriting bank. It is now a publicly traded company.
Step 9: The morning after being listing on a public exchange the SPAC will have its IPO.
Step 10: Institutional investors will buy shares in the SPAC via the IPO process; their funds will be held on trust account. Shares will also trade on a public exchange, although until there is news flow, the trade volumes are likely to be muted. In general, the value of the shares will be USD $10, although this can be modified.
Shanda Consult also works to ensure that SPAC sponsors will get a full warrant for every US Dollar sponsor capital invested. Most SPAC IPOs will include a partial warrant with every share, but we work to get the most for investors.
Step 11: The board of the SPAC will begin to pursue possible acquisitions that are in line with the prospectus