SPECIAL PURPOSE ACQUISITION COMPANIES (SPACS)

The Special Purpose Acquisition Companies (SPACs)have been since 2003 in US but have been growing in popularity throughout the world due to number of reasons like growth potential of target businesses, time consuming process of traditional IPO, credibility of sponsor and availability of liquid securities in the post COVID-19 times.

- Gajanan A. Patil

Introduction

Since the substantial funds have been already raised by SPACs in the recent past and a significant portion of these funds remain to be deployed in target across the globe, it is expected that many more SPAC transactions may be consummated in the near-future.

What is SPAC?

SPAC is company with no commercial operations or any specific business plan or has indicated that its business plan is to engage in a business combination (i.e. a merger or acquisition). In other words, a SPAC is formed strictly for the purpose of raising capital through an IPO and using those funds to acquire an operating business.These types of companies are popularly known as 'Blank Check Companies' which are raising blind pool of cash through IPO to acquire a private operating company.

SPACs bring together experienced management teams, often comprising industry veterans, private equity sponsors who can leverage their expertise to raise capital to acquire, then operate, a new public company.

The IPO of a large private company is facilitated, in effect through a merger with SPAC, enabling a private business to avoid the inherent costs and risks associated with the traditional IPO process.

Evolution of SPAC

The first SPACs that appeared in 1990's could not qualify for listing on any U.S. exchange and were often quoted on the OTC Bulletin Board and were made to comply with the onerous rules for blank check offerings.

In 2003, SPAC went public for the first time in US.

In 2005, the American Stock Exchange (NYSE Amex) began allowing SPACs to list under generic listing standards that did not require companies to have operating histories.