The setup phase of a SPAC provides remarkable profit perspectives for smaller investors (called "SPAC sponsors", investment approx. US$ 5 to 15 million), often ranging at an annual level of 25% during the first two years.
What is a SPAC?
A Special Purpose Acquisition Company (SPAC) is a company for the purpose of raising so-called blind pool capital from the market through an IPO, aiming to acquire operating businesses, assets, intellectual property and/or technology, generally within a max. period of 24 months.
Typically, SPACs aim at raising US$100 – 500 million and more, usually from constitutional investors such as pension funds etc. The capital raising goal of a SPAC depends on the specific investment strategy and goals, often defined for a specific industry, technology, or company/ies to be acquired.
Other than the investment strategy and goals, a well selected team of well-known and proven managers of a SPAC are an important factor of motivation for investors during the IPO.
Most IPOs of SPACs are listed on either NASDAQ or NYSE, where 46 SPACs were listed during 2018, raising a total capital of US$ 10,6 billion. 15 SPACs were listed during 2018 at the London Stock Exchange, raising a total of US$2,15 billion.
One of the reasons for the higher popularity of SPACs in the US is the better legal protection of investors, who do not pay their investments to the SPAC, but to an escrow account, from where the eventual acquisitions will be financed. Managers of a SPAC are not allowed to receive salaries or remunerations until the capital raised during the IPO has been invested as per the SPAC's pre-defined strategy.
By realising planned acquisitions, the SPAC becomes a holding, holding the acquired assets.
Typical (simplified) setup stages of a Special Purpose Acquisition Company (SPAC):
- A group of experienced experts develops the (post-IPO) investment concept for a SPAC and secures the participation of well-known experienced managers with proven track records, often industry veterans, private equity sponsors or other experts from the finance industry, who will leverage their expertise to raise capital to acquire and then to operate, a new public company (the SPAC).
- One or more sponsors are willing to
sponsor the Special Purpose Acquisition Company until its IPO.
Generally, SPACs can raise capital during the IPO of up to 20 times
of the initial funds provided by the sponsor(s). If the (post-IPO)
investment concept of a SPAC requires, for example, US$ 250 million
for pre-defined acquisitions, the total engagement of the
sponsor(s) must not be less than US$ 12,5 million.
Sponsors may participate as individuals or with their own companies. Furthermore, a group of sponsors may be bundled under the umbrella of a Registered Alternative Investment Fund with a Limited Number of Persons(RAIFLNP), and thus act collectively.
- In return for his initial financing
of a SPAC, the sponsor typically will receive around 20% of the
SPAC's shares, which will substantially raise in value after
Sponsors' funds are paid to an escrow account held for the SPAC. Should the SPAC's IPO fail, sponsors' funds will be paid back.
In addition to the initial funding of a SPAC, sponsors bear the setup and running cost of a SPAC, until its IPO. This amount is typically around US$ 750 to 800 thousand. In case the IPO of a Special Purpose Acquisition Company fails, the setup and running cost are not refundable and thus lost.
- Once the sponsor(s) have committed
themselves and made their payments (in four consecutive stages
during the setup and running of the SPAC until its IPO), the
Special Purpose Acquisition Company will get listed for the
Financial advising, listing and IPO are carried out by specialised banks in the US. The by-far most successful specialised bank is I-Bankers Securities Incorporated in New York, which participated in 47% of all US SPACs in both 2018 and 2017 and successfully acted as underwriter of 100 SPAC IPOs in total.
- After the envisaged capital has been raised during the IPO, a SPAC has normally up to 24 months to acquire operation businesses, assets, intellectual property and/or technology, as per its pre-defined acquisition goals.
For more information, please see our SPAC presentation:
What we can do for you
Your SPAC idea and concept
Shanda Consult and its partner network can advise you on the business structuring of a SPAC and to introduce you and your SPAC idea and concept to the right parties, including I-Bankers Securities Incorporated in New York as financial advisors and underwriters for the eventual IPO.
Interested to invest as a sponsor?
Should you be interested in getting involved as a sponsor of an SPAC, we will be happy to present you "ready-made" SPAC concepts from various industries, which top-class management teams ready and post-IPO investment strategy and specific goals defined.
List of SPACs currently available for sponsor participation:
- HEIDI – Smart Energy (ready for sponsors)
- LUPO – Microbiome (ready for sponsors)
- HAIMA – Biotech (ready for sponsors)
- LENUS – Medical CBD/THC (ready for sponsors)
- ALPHA&OMEGA – Fintech (Payment Solutions, blockchain technology; ready for sponsors)
- EQUINOX – Digital Out-of-Home Advertisement (blockchain technology; ready for sponsors)
- Digital Health Data (blockchain technology; WIP)
- Oil & Gas (WIP)
- EAGLE INDEMNITY – Insurance (WIP)
- eSports (Pre-project stage)
- Medical Health (Pre-project stage)
(SPAC 1, 3, 5, 6, 9, 11: Co-Sponsors possible)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.