Advantages of SPACs Over Traditional IPOs
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Background: What is a SPAC and how does it work?
(Continued)
The remaining proceeds of the Sponsor's private placement investment are available for the SPAC to
use to fund its expenses while seeking a target for a business combination.
• After the IPO, the SPAC will pursue an acquisition opportunity and negotiate a merger to acquire an
operating business (the Target).
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This transaction is known as a de-SPAC or the Business Combination.
• The de-SPAC transaction must be approved by the SPAC's stockholders at a meeting of stockholders.
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In the de-SPAC transaction, the IPO investors have the option to convert their shares into a pro rata
portion of the trust account and keep their warrants (Redemptions). The portion of the proceeds of
the Sponsor's private placement investment deposited into the trust account is used to gross up the
trust account for the underwriting discount so that the IPO investors receive the IPO price for the units,
plus interest, upon redemption.
As a result of the de-SPAC transaction, the Target becomes a publicly traded company.
Morgan Lewis
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