Advantages of SPACs Over Traditional IPOs
Background: What is a SPAC and how does it work?
A Special Purpose Acquisition Company is a blank-check company formed for the purpose of effecting a business
combination with one or more businesses (such as a merger or share exchange).
SPACS are formed to raise capital in an IPO with the purpose of using the proceeds from the IPO to acquire an unspecified
business after the IPO.
Most SPACS are formed by a private equity fund, financial institution, or group of investors whose investment vehicle is
known as the Sponsor. The Sponsor makes an initial (pre-IPO) investment of $25,000 for founder shares that are
worth a substantial portion of the post-IPO equity. The founder shares are also known as the Promote.
In its IPO, the SPAC typically issues units consisting of one share of common stock and a warrant to purchase common
stock. The Sponsor acquires additional units, shares, or warrants in a concurrent private placement.
The net SPAC IPO proceeds, a portion of the underwriting discount, and a portion of the concurrent private placement
proceeds are held in a trust account until released to fund the business combination.
Morgan Lewis
8View entire presentation