{"id":176982,"date":"2022-10-12T12:30:09","date_gmt":"2022-10-12T11:30:09","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=176982"},"modified":"2022-10-31T22:40:27","modified_gmt":"2022-10-31T22:40:27","slug":"spacs","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/spacs\/","title":{"rendered":"What are Special Purpose Acquisition Companies (SPACs) in England?"},"content":{"rendered":"

Special Purpose Acquisition Companies (SPACs) have become an increasingly common way of <\/span>raising money<\/span><\/a> to acquire a company. In many cases, they have replaced traditional initial public offerings (IPO) as the preferred way of capital raising. While SPACs have been around since the 1980s, 2021 saw a record-breaking increase in the number of SPAC deals undertaken in a single year. Therefore, understanding SPACs is an important aspect of modern-day private equity and capital raising. This article will explain what a Special Purpose Acquisition Company is and how they work.<\/span><\/p>\n

What Are SPACs?<\/span><\/h2>\n

SPACs (sometimes referred to as blank check companies) are a type of shell company that is set up for the sole purpose of acquiring another company. The individual or company that manages the SPAC is known as the SPAC’s sponsor. The sponsor will offer shares in the SPAC to the public through a traditional initial public offering (IPO).\u00a0<\/span><\/p>\n

Usually, the public will evaluate the merits of the investment on the basis of the sponsor\u2019s investment thesis. For example, the sponsors may only look at high-growth companies in the technology sector as potential acquisition targets. The sponsors must disclose the investment thesis in a publicly-available document called a prospectus.\u00a0<\/span><\/p>\n

Importantly, at the IPO stage, the sponsors will not typically have identified the acquisition target. Consequently, compared to traditional IPOs, the law requires the SPACs\u2019 sponsors to disclose far less information. This is a SPAC\u2019s key differentiator from traditional IPOs, where the public knows which business it is buying shares in. However, like traditional IPOs, banks will underwrite the listing. Similarly, t<\/span>he sponsors will invite institutional investors to commit to purchasing a certain percentage of shares upfront.\u00a0\u00a0<\/span><\/p>\n

Investors are commonly large banks, high-net-worth individuals, and members of the public.\u00a0<\/span><\/p>\n

The most common markets for SPACs are stock exchanges in the United States, such as the New York Stock Exchange. However, the London Stock Exchange now lists SPACs.\u00a0\u00a0<\/span><\/p>\n

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How Do SPACs Work?<\/span><\/h2>\n

Once the sponsor has finalised the IPO, the sponsors place the proceeds in a trust account. The terms of the trust obligate the sponsors to use the funds only to acquire a target company according to the terms of the prospectus. The SPAC will then typically have two years to complete the acquisition. If it does not acquire a target company in this timeframe, the sponsors liquidate the SPAC and return the IPO proceeds to all the investors.\u00a0<\/span><\/p>\n

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