The SPAC proposition
SPACs are a relatively straightforward concept, involving the establishment of a new company by a team of experienced promoters with the objective of raising equity finance in conjunction with a stock market listing, and then deploying these funds to acquire a suitable business. A SPAC has no business or assets other than the cash raised, which must be used within a limited timeframe to make a substantial acquisition (called a ‘de-SPAC’). If a suitable target is not identified, the SPAC must be wound up and the funds returned to investors.
At the heart of the structure’s appeal is the speed and certainty it offers for a target seeking an IPO, in comparison to a traditional flotation. With the funds already raised, management can avoid the lengthy timescales and uncertainty involved in a traditional IPO and accompanying investor roadshow, and limit the negotiations on price to a smaller group of stakeholders.