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Things You Need to Know About SPACs

A special purpose acquisition company (SPAC) is also known as a “blank check company.” It is an entity that has no commercial operations and is meant to complete the initial public offering (IPO) procedures. 


For companies and investors, there are several important aspects of SPACs that they should know about to ensure they are fully familiar with this important concept. 


In this regard, professional accounting firms in Malaysia are also instrumental in helping companies form a SPAC.  


Keep reading to learn all about SPACs. 

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Goals of SPACs

The primary purpose of a SPAC is to bring a private company into the public market. Implementation of SPAC strategies can be quite difficult, but they take less time than traditional IPO listing. 


Moreover, taking a company public via SPAC is cheaper compared with a traditional IPO because it involves lower advisory charges. Organizations that are in their early stages can easily fulfill the requirements to merge with a SPAC and complete the IPO process.


What Happens in a SPAC Merger?

The process of forming a SPAC starts by raising capital on a stock exchange. Generally, the common stock is priced at $10, and warrants are offered to purchase additional shares to attract investors. 


A trust account is used to hold the initial sale of stock until a suitable merger partner is found to complete the IPO process. 


The team behind the SPAC is responsible for identifying and negotiating a suitable business structure with a private entity to get the desired results. This process can become smooth and easy with the help of an accounting firm in Malaysia.


Once the investors are familiar with the target company, the initial share price of $10 changes, and the deal terms are decided accordingly. The share price can keep adjusting according to the developing situation. 


Generally, SPAC share prices will see huge growth after the announcement of the acquisition target. However, if the sentiment toward going public turns negative, the SPAC’s share price can decline as well. 


The announcement of the merger is followed by a “de-SPAC” transition period. There is typically a certain time period between the formal merger announcement and the close of the deal when investors decide the overall terms and handle legal matters.  


Once a deal is announced, the de-SPAC transition begins. There is usually a time between a formal merger announcement and the close of a deal (when investors vote on the deal), and other legal matters are resolved. 


Once a SPAC has raised money, it has about 18 to 24 months to identify and find a suitable merger partner. Companies that encounter difficulty in finding the best partner can rely on experts like a professional accounting firm in Malaysia for the best recommendation and outcome.  


Why Would Someone Invest in a SPAC?

It is common for investors to buy into SPAC before the announcement of a merger solely because of the trust they have for the SPAC’s management team and its ability to find a suitable target. 

Therefore, it is important to note that many SPACs are backed by large-scale investors, celebrities, and popular athletes. 


The share prices of SPACs were stable before the merger. The ideal practice is that SPAC invests all of the money it raises into government bonds or other safe forms of investments. 


It is useful for investors as they get to make a modest return and minimize the risks of financial loss while they look for the perfect merger partner. 


Buying shares in an emerging SPAC can be a leap of faith, but the profits can be massive in both the short and long term. It is possible for the share price to change immediately after the deal announcement. In such a situation, investors can greatly benefit from rapid price increases.

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SPAC is not the traditional method of taking a company public and making money. However, it is a popular alternative to the conventionally lengthy and difficult IPO process. Moreover, it can give great financial benefits to investors and acquisition targets when the best SPAC merger practices are implemented. 


In order to make this process smooth and successful, it is highly recommended that companies rely on a professional accounting firm in Malaysia to ensure the experts are there to handle such important matters in the best way possible.   

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