Special-purpose acquisition company
A special purpose acquisition company (SPAC;
In the U.S., SPACs are registered with the SEC and considered publicly traded companies. The general public may buy their shares on stock exchanges before any merger or acquisition takes place. For this reason they have at times been referred to as the "poor man's
Despite the popularity and growth in the number of SPACs, academic analysis shows investor returns on SPAC companies post-merger are almost uniformly negative, although investors in SPACs and merged companies may earn excess returns immediately after the merger.[6] Proliferation of SPACs usually accelerates around periods of economic bubbles, such as the "everything bubble" between 2020 and 2021.[7]
Characteristics
Mechanics
SPACs generally trade as units or as separate common shares and warrants on the Nasdaq and New York Stock Exchange (as of 2008) once the public offering has been declared effective by the SEC, distinguishing the SPAC from a blank check company formed under SEC Rule 419.[8][citation needed] Commonly, units are denoted with the letter "u" (for unit) appended to the ticker symbol of SPAC shares.[9]
Trading liquidity of the SPAC's securities provide investors with a flexible exit strategy. In addition, the public currency enhances the position of the SPAC when negotiating a business combination with a potential merger or acquisition target. The common share price must be added to the trading price of the warrants to get an accurate picture of the SPAC's performance.[citation needed]
By market convention, 85% to 100% of the proceeds raised in the IPO for the SPAC are held in
Each SPAC has its own liquidation window within which it must complete a
In addition, the target of the acquisition must have a fair market value that is equal to at least 80% of the SPAC's net assets at the time of acquisition. Previous SPAC structures required a positive shareholder vote by 80% of the SPAC's public shareholders for the transaction to be consummated.[11] However, current SPAC provisions do not require a shareholder vote for the transaction to be consummated unless as follows:[citation needed]
Purchase of assets | No |
Purchase of stock of target not involving a merger with the company | No |
Merger of target with a subsidiary of the company | No |
Merger of the company with a target | Yes |
Governance
To allow for stockholders of the SPAC to make an informed decision on whether they wish to approve the business combination, the company must make full disclosure to stockholders of the target business, including complete audited financials, and terms of the proposed business combination via an SEC merger proxy statement. All common share stockholders of the SPAC are granted voting rights at a shareholder meeting to approve or reject the proposed business combination. A number of SPACs have also been placed on the London Stock Exchange AIM exchange. These SPACs do not have the aforementioned voting thresholds.[citation needed]
Since the financial crisis,[
Management
The SPAC is usually led by a management team composed of three or more members with prior private equity, mergers and acquisitions, and/or operating experience. The management team of a SPAC typically receives 20% of the equity in the vehicle at the time of offering, exclusive of the value of the warrants. The equity is usually held in escrow for two to three years, and management normally agrees to purchase warrants or units from the company in a private placement immediately prior to the offering. The proceeds from this sponsor investment (usually equal to between 2% and 8% of the amount being raised in the public offering) are placed in the trust and distributed to public stockholders in the event of liquidation.[citation needed]
No salaries, finder's fees, or other cash compensation are paid to the management team prior to the business combination, and the management team does not participate in a liquidating distribution if it fails to consummate a successful business combination. In many cases, management teams agree to pay for the expenses in excess of the trusts if there is a liquidation of the SPAC because no target has been found. Conflicts of interest are minimized within the SPAC structure because all management teams agree to offer suitable prospective target businesses to the SPAC before any other acquisition fund, subject to pre-existing fiduciary duties. The SPAC is further prohibited from consummating a business combination with any entity affiliated with an insider, unless a fairness opinion from an independent investment banking firm states that the combination is fair to the shareholders.[citation needed]
Banking
SPAC Research, an entity running a SPAC database, maintains an underwriter
SPACs in Europe
In July 2007, Pan-European Hotel Acquisition Company N.V. was the first SPAC offering listed on the Euronext Amsterdam, raising approximately €115 million. I-Bankers Securities has been the underwriter with CRT Capital Group as lead-underwriter.
In March 2021, a report prepared by Lord Hill for the Chancellor of Exchequer recommended a series of changes to London company listing rules to make them more favorable to SPAC listings.[18] Among the report's proposals is to reduce the percentage of shares that must be offered to the public from 25% to 15%.[19]
SPACs in Asia
On March 18, 2022, Aquila Acquisition Corp debuted on the Hong Kong Exchanges and Clearing Limited (HKEX). The IPO received lukewarm reception by investors, with shares down 3% in the two-week period post-IPO. Despite this decrease, there is a high demand for SPAC public offerings in Hong Kong, with HKEX reporting that they have received applications for 11 additional SPAC IPOs.[20]
SPACs in emerging markets
Emerging market focused SPACs, particularly those seeking to consummate a business combination in China, have been incorporating a 30/36 month timeline to account for the additional time that it has taken previous similar entities to successfully open their business combinations.[citation needed]
History
History of private equity and venture capital |
---|
Early history |
(origins of modern private equity) |
The 1980s |
(leveraged buyout boom) |
The 1990s |
(leveraged buyout and the venture capital bubble) |
The 2000s |
(dot-com bubble to the credit crunch) |
The 2010s |
(expansion) |
The 2020s |
(COVID-19 recession) |
Since the 1990s, SPACs have existed in the technology, healthcare, logistics, media, retail and telecommunications industries. Their history began with investment bank GKN Securities, specifically, founders David Nussbaum,[21] Roger Gladstone, and Robert Gladstone, who later founded EarlyBirdCapital with Steve Levine and David Miller (currently managing partner of Graubard Miller law firm) and who developed the template.[citation needed]
The success of SPACs in building equity value for their shareholders has drawn interest from investors such as Bill Ackman who had backed three SPACs as of 2015, including the SPAC that took Burger King public.[22][23][24][25]
IPO Year | IPO Count | Gross Public Proceeds (in billions) |
---|---|---|
2009 | 1 | $0.036 |
2010 | 7 | $0.503 |
2011 | 15 | $1.082 |
2012 | 9 | $0.491 |
2013 | 10 | $1.455 |
2014 | 12 | $1.750 |
2015 | 20 | $3.902 |
2016 | 13 | $3.499 |
2017 | 34 | $10.048 |
2018 | 46 | $10.752 |
2019 | 59 | $13.608 |
2020 | 248 | $83.380 |
2021 | 613 | $162.503 |
2022 | 86 | $13.431 |
2023 | 31 | $3.848 |
2024* | 4 | $0.511 |
*As of 29 February 2024[update]
Regulation
In the US the SPAC public offering structure is governed by the Securities and Exchange Commission (SEC). A public offering for a SPAC is typically filed with the SEC under an S-1 registration statement (or an F-1 for a foreign private issuer) and is classified by the SEC under
Regulatory Developments
On January 24th, 2024, the SEC unveiled new rules for Special Purpose Acquisition Companies (SPACs), introducing clarifications to enhance regulatory transparency and integrity without significantly altering the existing framework. Critical updates include maintaining the current stance on SPACs under the '40 Act and the definition of banks as underwriters while refining the criteria for forward-looking statements by redefining "blank check company" and eliminating one safe harbor provision.[27] Additionally, the SEC has encouraged more realistic management projections for DeSPAC transactions and required detailed disclosures on board votes and the dilutive impacts of compensation and securities issuances.[27] These developments aim to enhance transparency and integrity within the SPAC ecosystem, reflecting a cautious approach to regulation without fundamentally altering existing practices.[27]
Statistics
According to an industry study published in January 2019, from 2004 through 2018, approximately $49.14 billion was raised across 332 SPAC IPOs in the US. In that period, 2018 was the largest year for SPAC issuance since 2007, with 46 SPAC IPOs raising approximately $10.74 billion. SPACs seeking an acquisition in the energy sector raised $1.4bn in 2018, after raising a record $3.9bn in 2017. NASDAQ was the most common listing exchange for SPACs in 2018, with 34 SPACs raising $6.4bn. GS Acquisition Holdings Corp. and Churchill Capital Corp. raised the largest SPACs of 2018, with $690mm each in IPO proceeds.[28] In 2019, 59 SPAC IPO's raised $13.6 billion.[29] Nearly 250 SPACs raised more than $83 billion in 2020. In the first month of 2021 there were 75 SPACs.[30]
In a March 2020 event,
Past performance
A study found that as of the 1st of December 2022, American-listed SPACs that completed their mergers between July 2020 and December 2021 had a mean share price of $3.85. This constitutes a fall of over 60% from the standard $10 per share that SPAC shareholders could have received if they redeemed their shares. The study also found that “The average post-merger SPAC during this period underperformed the average traditional IPO by 26%.”[32] Another study, focusing on a longer timeframe of U.S. SPACs from December 2012 until June 2021 found average stock price decreases of 14.1% after 1 year of the merger announcement and 18% after 2 years.[33]
See also
References
- ^ Domonoske, Camila (2020-12-29). "The Spectacular Rise Of SPACs: The Backwards IPO That's Taking Over Wall Street". NPR. Archived from the original on 2021-02-22.
So what is a SPAC? A "special purpose acquisition company" is a way for a company to go public without all the paperwork of a traditional IPO, or initial public offering. In an IPO, a company announces it wants to go public, then discloses a lot of details about its business operations. After that, investors put money into the company in exchange for shares. A SPAC flips that process around. Investors pool their money together first, with no idea what company they're investing in. The SPAC goes public as a shell company. The required disclosures are easier than those for a regular IPO, because a pile of money doesn't have any business operations to describe. Then, generally, the SPAC goes out and looks for a real company that wants to go public, and they merge together. The company gets the stock ticker and the pile of money much more quickly than through a normal IPO.
- ^ Broughton, Kristin; Maurer, Mark (September 22, 2020). "Why Finance Executives Choose SPACs: A Guide to the IPO Rival". The Wall Street Journal. Retrieved 22 February 2021.
- ^ "Blank Check Company". SEC.gov. U.S. Securities and Exchange Commission. Retrieved 26 August 2020.
- ISSN 0007-7135. Retrieved 9 March 2021.
- ^ "Are SPAC mergers still a healthy option for tech companies aiming to go public?". KrASIA. 2022-03-23. Retrieved 2022-03-27.
- ^ Li, Yun (10 February 2021). "Unusual first-day rallies in SPACs raise bubble concern: 'Every single one of them has gone up'". CNBC. Retrieved 18 February 2021.
- ^ Naumovska, Ivana (February 18, 2021). "The SPAC Bubble Is About to Burst". Harvard Business Review. Retrieved 22 February 2021.
- ^ "17 CFR § 230.419 - Offerings by blank check companies". LII / Legal Information Institute. Retrieved 2021-02-23.
- ^ Langager, Chad. "What are the fifth-letter identifiers on the Nasdaq?". Investopedia. Retrieved 2021-02-13.
- ^ "SPACs explained | Fidelity". www.fidelity.com. Retrieved 2021-02-26.
- ^ "Special Purpose Acquisition Company (SPAC) – Definition". WGP Global.
- ^ a b "Underwriter League". SPAC Research. Retrieved 18 January 2021.
- ^ a b "Completed Transactions". I-Bankers Securities. Retrieved 18 January 2021.
- ^ "Special Purpose Acquisition Company Database | SPAC Research". SPAC Research. Retrieved 27 March 2022.
- ^ a b "Data". www.afm.nl. Retrieved 2021-03-07.
- ^ "Mondo Visione - Worldwide Exchange Intelligence". mondovisione.com.
- ^ Cowie, Dawn (July 23, 2008). "Germany1 Acquisition raises $437.2 million". Wall Street Journal – via www.wsj.com.
- ^ Thomas, Daniel; Stafford, Philip (March 3, 2021). "UK listing rules set for overhaul in dash to catch Spacs wave". THE FINANCIAL TIMES LTD. Archived from the original on 2022-12-11. Retrieved 3 March 2021.
- ^ BBC News (March 3, 2021). "Hill review: London takes aim at Amsterdam with new listing rules". BBC.co.uk. BBC. Retrieved 3 March 2021.
- ^ "Hong Kong Tests the Waters with SPAC IPOs". thediplomat.com. Retrieved 2022-04-27.
- ^ "Trust Me". Forbes. Retrieved 2021-11-28.
- TheStreet.com. New York. Retrieved 2020-07-02.
- ^ Bill, Ackman (25 August 2014). "Ackman and Burger King". Bloomberg.com.
- ^ Bill, Ackman. "Bill Ackman invests $350 million in SPAC". Forbes.
- ^ Bill, Ackman (10 June 2015). "Ackman in Platform Specialty SPAC".
- ^ a b "Special Purpose Acquisition Company (SPAC) Statistics | SPACInsider". SPACInsider. Retrieved 29 February 2024.
- ^ a b c "Special Purpose Acquisition Company (SPAC) News | SPACInsider". SPACInsider. Retrieved 26 February 2024.
- ^ SPAC Research, SPAC Market Trends, January 2019
- ^ "US SPAC IPO Issuance". SPACResearch.com. SPAC WIRE LLC. Retrieved 27 June 2020.
- ^ Saldanha, Ruth (January 28, 2021). "SPACs Party Like It's 2020". Morningstar.com. Retrieved 2021-02-12.
- ^ Bain, Benjamin (11 March 2021). "SPAC Investment Returns Don't Match 'Hype,' SEC Chief Says". Bloomberg News. Retrieved 13 March 2021.
- ^ "Was the SPAC Crash Predictable?". Yale Journal on Regulation. Retrieved 2023-09-08.
- ISSN 1354-7798.
Bibliography
- Feldman, David N. (2018). Regulation A+ and Other Alternatives to a Traditional IPO. Hoboken, New Jersey: Wiley. ISBN 9781119416166.
- Klausner, Michael; Ohlrogge, Michael; Ruan, Emily (2021). "A Sober Look at SPACs". Stanford Law and Economics Olin Working Paper. 559.
- Pollard, Troy (2016). "Sneaking in the back door? An evaluation of reverse mergers and IPOs". Review of Quantitative Finance and Accounting. 47 (2): 305–341. S2CID 54029302.
- Sjostrom, W. K. Jr. (2007–2008). "The Truth About Reverse Mergers". Entrepreneurial Business Law Journal. 2: 743–751.