What is a SPAC?
A liquid equity investment instrument with a defensive risk profile, stable market-uncorrelated performance, upside potential.
Special Purpose Acquisition Companies: financial vehicles allowing a team of managers with outstanding track record (the ‘Sponsor’) to collect capital through an IPO, for the purpose of a single acquisition. (‘Business Combination’)
SPAC IPOs are typically listed at usd 10, including a free warrant. Capital collected is 100% invested in short term US Government treasuries held in escrow with a bulge bracket bank, segregated and untouchable except for the purposes of acquisition or Spac dissolution. All costs (3-4% of capital collected) are borne by sponsors and not shared with investors. Management team invests at-risk capital upfront to cover IPO fees: investors can thus be returned at least 100% of capital (some SPACs return an additional guaranteed yield).
What is the Scope of SPAC?
Management has 18-24 months time to conclude the business combination (80% initial capital required) or return at least 100% of capital if no acquisition is successfully concluded; over that period of time, the SPAC remains a listed and liquidable equity position with guaranteed capital recovery; following business combination, the acquired company takes over the listing and assumes a regular equity investment risk profile.Every investor retains the option not to participate in the business combination and recover at least 100% of capital.
The Business Combination
The SPAC will explore possible takeover targets up to 4-5 times size of IPO. SPACs are free to roam any sector/geography in the quest for a target: sometimes a preference is highlighted in prospectus, but is never limiting. In case of business combination, the sponsor is entitled to a (usually 20%) shareholding in the acquired company; in case of SPAC liquidation, the sponsor’s investment is not compensated. sponsor teams have a strong personal incentive to perform and alignment of interest with investors is ensured. At business combination, investors retain the right to opt out of the acquisition and redeem common stock at usd 10/share (retaining tradeable warrants).