What is SPAC? Part 1

SPAC is one of the most active asset class this year. From Bill Ackman and pretty much your next door neighbor, everyone is doing their own SPAC. But what exactly is it?

SPAC Basic Structure

Special purpose acquisition companies (SPAC) is a company is that formed by experienced professionals (Sponsors) to acquire a late stage company (Target Company). The SPAC will raise capital from institutional and retail investors through an IPO. The proceed of the IPO will be used to acquire the Target Company in the next 24 months. If the SPAC could not find a target to acquire, the company will return all the capital raised from investors.

And generally, the capital raised in the IPO will not be sufficient to fully acquire the Target Company. So at the time of the transaction, the SPAC will have to arrange another private investment in public equity (PIPE) to cover the additional capital required.