A SPAC is a special purpose acquisition company that raises money from investors to determine a target company to acquire later. They typically have two years to get a transaction done or they must return the money. At the end of the transaction, they merge with a target company which is now publicly traded. <\/p>\n\n\n\n
While negotiating, the SPAC will look for a period of\nexclusivity where the target company gives up its right to work with another\nSPAC, go through an IPO or be acquired. The SPAC on the other hand, will likely\nnot want to offer a period of exclusivity as it has a short amount of time to\nget a deal done before money gets returned to investors.<\/p>\n\n\n\n
Signing an exclusivity agreement limits a target company\u2019s\noptions but it may feel it has no choice. <\/p>\n\n\n\n
If success truly is 90% preparation and 10% perspiration as\nthey say, a good way to handle the recently popular SPAC opportunity is to run\na process through a registered\nrepresentative<\/a> ahead of time and knock on SPAC doors before they knock\non yours.<\/strong><\/p>\n\n\n\n If your company is in a hot space, has growing or recurring\nrevenue and is of a certain size, it is very likely it will be contacted. Consider,\naccording to CNBC<\/a>,\njust in 2020 alone, 194 SPAC IPOs raised $67 billion! <\/p>\n\n\n\n Much of this money is kept in a trust until a transaction happens or it is returned to investors and it represents a portion of money that target companies receive when they merge with a SPAC. A SPAC is not limited to merging with a company that is worth as much as it has in its trust. It uses the money in the trust to buy shares of the target company but the target can be worth far more than the SPAC has raised. <\/p>\n\n\n\n This is why target companies often simultaneously raise additional private money via institutional investments. This is known as a private investment in public equity or a PIPE transaction. There could be a separate debt or equity offering as well. Often, a company will announce a PIPE and SPAC transaction together.<\/p>\n\n\n\n As an example of a recent transaction, Crypto exchange Bakkt\nannounced<\/a>\nit would go public via a SPAC merger, giving it an enterprise value of $2.1\nbillion.<\/p>\n\n\n\n There are many pros to a SPAC transaction in my opinion: <\/strong><\/p>\n\n\n\n Notice, three of the positives of a SPAC merger are the\nspeed of the transaction. Ironically, speed \u2013 the elimination of a long IPO\nprocess, is a big part of why a SPAC may not be a fit for every organization.\nHere are some of the cons in my opinion:<\/strong><\/p>\n\n\n\n In summary \u2013 many companies choose the SPAC route, trading a\nhigher level of market certainty for what seems like an impossible task of\nrunning a business while doing much the same amount of work of an IPO \u2013 perhaps\nmore, but in a few months.<\/p>\n\n\n\n How does the SPAC merger process work?<\/strong><\/p>\n\n\n\n If you aren\u2019t prepared for dealing with SPACs before they\ncome knocking, you will have a short window in which to make a very important\ndecision. They will likely want one or more board seats as well so you want to\nbe sure to find the right partner before doing a deal. In addition, you will\nlikely be negotiating with a single party \u2013 which often means you don\u2019t have\nthe chance to compare your options in an auction-type environment.<\/p>\n\n\n\n SPACs have limited time on their side. They have to move fast.<\/strong> They try to lock your organization up for a long period while you negotiate. This is not in the interest of the target company.<\/p>\n\n\n\n In some ways, merging with a SPAC without investigating the\nmarket as a whole, is similar to negotiating with a random buyer who wants to\npurchase your house. Most people opt to hire a realtor because they gain access\nto a far larger pool of buyers and also benefit from a third-party negotiating\nfor them.<\/p>\n\n\n\n Similarly, a knowledgeable registered representative<\/a> working with\nan experienced firm can assist in exploring your alternatives \u2013 not just SPACs\nbut IPOs, debt, etc. If you choose an independent representative that doesn\u2019t\nunderwrite IPOs themselves, you can get a more objective opinion. Another\nconsideration is some of the major investment banks may favor their own\nofferings or those of their colleagues at other firms, meaning your company may\nnot get truly objective advice.<\/p>\n\n\n\n Rich Tehrani is CEO of <\/em>RT Advisors<\/em><\/a> and a\nRegistered Representative with and offering securities through <\/em>Four Points Capital Partners LLC <\/em><\/a>(Four\nPoints) (Member FINRA\/SIPC). RT Advisors is not owned by Four Points.<\/em><\/p>\n\n\n\n The above should not be considered and is not a\nrecommendation to invest in or sell short the securities of the underlying\ncompany(ies).<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" A SPAC is a special purpose acquisition company that raises money from investors to determine a target company to acquire later. They typically have two years to get a transaction done or they must return the money. At the end of the transaction, they merge with a target company which is now publicly traded. While<\/p>\n","protected":false},"author":44,"featured_media":18269,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[118],"tags":[3003],"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/blog.tmcnet.com\/blog\/rich-tehrani\/wp-json\/wp\/v2\/posts\/18268"}],"collection":[{"href":"https:\/\/blog.tmcnet.com\/blog\/rich-tehrani\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.tmcnet.com\/blog\/rich-tehrani\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.tmcnet.com\/blog\/rich-tehrani\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.tmcnet.com\/blog\/rich-tehrani\/wp-json\/wp\/v2\/comments?post=18268"}],"version-history":[{"count":1,"href":"https:\/\/blog.tmcnet.com\/blog\/rich-tehrani\/wp-json\/wp\/v2\/posts\/18268\/revisions"}],"predecessor-version":[{"id":18270,"href":"https:\/\/blog.tmcnet.com\/blog\/rich-tehrani\/wp-json\/wp\/v2\/posts\/18268\/revisions\/18270"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.tmcnet.com\/blog\/rich-tehrani\/wp-json\/wp\/v2\/media\/18269"}],"wp:attachment":[{"href":"https:\/\/blog.tmcnet.com\/blog\/rich-tehrani\/wp-json\/wp\/v2\/media?parent=18268"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.tmcnet.com\/blog\/rich-tehrani\/wp-json\/wp\/v2\/categories?post=18268"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.tmcnet.com\/blog\/rich-tehrani\/wp-json\/wp\/v2\/tags?post=18268"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}