How to Start a Special Purpose Acquisition Company (SPAC)?
In recent years, Special Purpose Acquisition Companies (SPACs) have become very popular because they give companies an alternative to the traditional IPO process. However, there are certain aspects of SPAC that businesses must understand before starting this process.
Generally, relying on professional accounting services and pre-IPO advisory in Malaysia help companies in navigating through this process quickly and smoothly. If you are unsure what exactly a SPAC is and how it works, you are in the perfect place.
In this article, we will discuss the important aspects of a SPAC in detail, so keep reading to learn more.
What is a SPAC?
A SPAC is basically a “shell company” that investors set up in order to raise money through an IPO and then acquire another company. In other words, a SPAC does not have any commercial operations. It does not provide any products or services directly. A SPAC’s only assets are the funds raised through an IPO.
Generally, a team of investors is behind the creation or sponsorship of SPAC. Financial experts and a lot of high-profile CEOs use SPACs to acquire companies and make them go public.
However, it is important to note that when a SPAC raises money, the people investing in the SPAC are not familiar with the target company it wishes to acquire.
This is the reason why experienced investors with proven track records usually have a higher chance of convincing the general public to invest in the company. Because of such working procedures, many people refer to a SPAC as a “blank check” company.
The typical price of SPAC IPOs is around $10 per share. Once the IPO raises significant capital, it starts going into the interest-bearing trust account until the management of SPAC has found the perfect private company that wants to go public via acquisition.
Upon the completion of the acquisition, SPAC’s investors have the choice of swapping their shares for shares of the merged company, or they can choose to redeem their SPAC shares and get back their original investment, including the interest earned while the money was in trust.
Dealing with such procedures can be challenging for most businesses, so it is recommended to rely on professional accounting services in Malaysia and obtain guidance from the experts throughout the acquisition process.
In this way, both the investors and the management are able to make reliable decisions.
The exact composition and investment details of SPAC can greatly vary depending on the legal agreements signed between the involved parties. Generally, SPAC investors get a 20% stake in the merged company.
Nevertheless, it is important to note that SPAC sponsors must comply with certain deadlines to get the best deal within a period of two years after the IPO. Otherwise, the risk of liquidity increases. Failing to acquire a company within two years means the SPAC must return the money to investors.
What are the requirements for a SPAC?
In order for a SPAC to be successful, it is important to take every step with proper planning. Not every company and investor is ready to go public, so it is recommended that you hire professional pre-IPO advisory services to make sure your company meets all the requirements to go public.
In this regard, a company that wants to go public via SPAC must meet the general requirements of the traditional IPO process. A SPAC, on the other hand, doesn’t do any direct business, so the information that is available is limited and not as thorough as it is for an IPO.
Some of the key areas to identify in SPAC are:
- Criteria and goals of SPAC.
- Costs, risks, and limitations associated with SPAC.
- The amount of time required by the SPAC management to find the target company.
- Liquidity period.
- A refund policy for the initial investment.
How Much Does It Cost to Create a Special Purpose Acquisition Company?
There is no one specific cost associated with the creation of a SPAC. It is dependent on specific legal conditions and the scale of SPAC. Generally, the cost can reach $800,000 USD, with over 5.1% of the IPO proceeds going to sponsor capital. A large portion of the setup charges are paid in the pre-IPO phase, while the remaining amount is covered after the acquisition is complete.
Overall, navigating the process, challenges, and risks of SPAC can be complicated for most businesses.
In this regard, companies planning to go public should rely on professional accounting services and pre-IPO advisory services in Malaysia to ensure a smooth and productive process.