Tweet

SPECIAL PURPOSE ACQUISITION COMPANY (SPAC) FUNDING OPPORTUNITIES

Written by: Jayson Curuso

Article Overview: Many SPAC corporations are developed from Capital Pool Companies(CPC) or the USA as” Blind Pool” incorporation. Capital Pool companies are better known in the Canadian small Cap market to raise capital as describe herein.

SPECIAL PURPOSE ACQUISITION COMPANY (SPAC) FUNDING OPPORTUNITIES

A special purpose acquisition corporation, commonly known as a “SPAC,” and formally a “development stage company,” is generally incorporated with the primary objective of raising funds through a public offering of its securities primarily for purpose of acquiring one or more operating companies. However, it will typically begin as a corporation formed by a small group of industry executives or sophisticated investors (“Founding Stockholders”). The Founding Stockholders purchase the company’s common stock for nominal consideration and generally retain, after completion of the IPO, 20% of the SPAC’s common equity, although this percentage is less if the underwriters’ over-allotment option is exercised. Some or all of the Founding Stockholders also serve as the SPAC management team that will search for prospective target operating companies.

The most distinguishing characteristic of a SPAC is that it gives investors the opportunity to vote on potential transactions and redeem a portion of their proceeds held in the trust account if they vote against a proposed transaction.

SPACs and Reverse Mergers (See previous articles ON Reverse Merger and PPM)
A SPAC is similar to a reverse merger. However, unlike reverse mergers, SPACs come with built-in investor teams and an experienced management team. They are also set up with a clean slate where the management team searches for a target to acquire. This is contrary to pre-existing companies in reverse mergers.

SPACs typically raise more money than reverse mergers at the time of their IPO. The average SPAC raises about $75 million through its IPO compared to $5.24 million raised through reverse mergers in the months immediately preceding and following the completion of their IPOs. SPACs also raise money faster than private equity funds. The liquidity of SPACs also attracts more investors as they are offered in the open market.

Hedge funds and investment banks are very interested in SPACs because the risk factors seem to be lower than standard reverse mergers. SPACs allow the targeted company’s management to continue running the business, where they will sit on the board of directors. After a transaction, the company retains the target name and may register trade on the NASDAQ.

Regulation
The Securities and Exchange Commission (SEC) is currently investigating SPACs to determine whether they require special regulations to ensure that these vehicles are not abused like blind pool trusts and blank-check corporations have been over the years. Many believe that SPACs do have corporate governance mechanisms in place to protect shareholders.


Advantages
SPACs are more transparent than private equity as they are regulated by certain SEC rules, including filing their financial statements. Since SPACs are publicly traded, they provide liquidity to an investor (i.e. investment comes in the form of common shares and warrants which can be traded). The unique benefits are the special rights of shareholders to vote in approval or rejection of the deal and the ability for investors to regain most of their funds if the SPAC was unsuccessful. In addition, it is an opportunity for individuals not qualified to buy into hedge or private-equity funds to participate in the takeovers of private operating companies that those funds typically do. Additionally, the SPAC vehicle for the target company is the opportunity to effect a reverse merger that yields more capital.

Disadvantages
Other than the risks normally associated with IPOs, SPACs’ public shareholders' risks include:
• limited liquidity of their securities
• loss of 0-15% of their investments if no M&A deals are made
• lack of investment diversification
• lack of management’s time devoted to SPACs due to involvement in other ventures
There is also potential for delay and expense attributable to the public shareholders' special rights and the costs of functioning as a registered public company.
.
Restrictions Involved

SPACs generally self impose certain restrictions on their own activities, as well as those of their respective management teams, subsequent to their IPO to provide protection for their investors. These restrictions generally include, among other things, the following:
• Submission of Offering Proceeds in a Trust

As an essential investor protection in a SPAC, a large percentage of the IPO proceeds (generally above 90%), net of a portion of the underwriters’ compensation, but not of other offering expenses, is deposited into a trust account where the funds are invested exclusively in short-term government securities until the earlier of (i) the consummation of a business combination that has been approved by stockholders, and (ii) liquidation of the SPAC as discussed below.
• Limitation on Fair Value of Target Businesses
– In order for a SPAC to consummate a business combination, the target business must have a fair market value representing at least 80% of the SPAC’s net assets (excluding deferred underwriters’ discounts and commissions held in trust) after the time of acquisition.


• Limitation on Exercise of Warrants
– The warrants included as part of the units issued by a SPAC will often not become exercisable until the later of (i) the consummation of a business combination, and (ii) some fixed date subsequent to consummation of the SPAC’s IPO (usually one year after the IPO date).
• Opportunity to Approve a Business Combination
– SPACs are required to seek stockholder approval of a proposed business combination, and any business combination must be approved by at least a majority of the shares of common stock purchased in connection with the IPO and no more than 19.99% may choose to liquidate their shares in order for a transaction to proceed.
• Conversion Right of Disapproving Stockholders
– The terms of a typical SPAC offering allow stockholders to vote on a proposed business combination. The SPAC will send each public investor a proxy statement, and any investor who votes against the business combination and affirmatively declares his or her election to convert his or her shares will have the right to receive his or her pro rata share of the trust account in accordance with the procedures disclosed in the prospectus. In the event that greater than 20% of disapproving stockholders elect to convert their shares, a SPAC would also be prevented from completing a proposed business combination and would be liquidated.
• Business Combination Deadline
– A SPAC must typically consummate a business combination within twelve months of its IPO or within eighteen months of its IPO if it enters into a letter of intent, agreement in principle or definitive agreement with a prospective target operating company within twelve months of its IPO. Some SPACs have also used eighteen and twenty-four month time periods, respectively.
• Liquidations Requirement
– In the event that a SPAC fails to complete a business combination within the required time period, it typically is required to liquidate and distribute a pro rata share of the then Trust funds to its stockholders. Founding Stockholders are generally not eligible to receive any distribution of Trust funds with respect to any shares they acquired prior to the SPAC’s IPO, however.
Our banking sources will invest from One million to seventy –five million in assets to enhance the balance sheet of a SPAC’S which greatly improves the chances of raising additional capital. We also have Angel investors to invest in SPAC companies. For more information contact the undersigned.

Related Articles
  Small and medium Business Finance Equity Program
  Do I Practice What I Preach?
  UK Business Finance - The Options Available To You
  Part 7: Funding Request
  How To Strategically Use The News To Identify Create New Business Opportunities

Article Tags: funding, ipo, loans



Related Forum Posts
Top 50 Entrepreneurs Ever! - And the Top 50 Entrepreneurs of all time are… (In no particular order) Hugh Hefner – Obvious. Oprah – Born to a single mother in rural Mississippi, did what she loved and never let up. Popularized and revolutionized the tabloid talk show genre. Simon Cowell – Guy made millions off Karaoke. Jenna Jameson – Worth $70 million using only what god gave her. Henry Ford – Standardized efficiency. Thomas Edison – Numerous failures on the road to success. Perseverance! Adrian Block - 1612 establish the first known brewery in the New World on the southern tip of New Amsterdam (Manhattan). I live in a city with more than 30 breweries operating in the city limits…think these guys were onto something. Hans Christiansen – Partners with Adrian Block. Adam Osborne – Creator of the 1st personal computer. Howard Hughes – Say what you want about him the man had a vision and stuck to it. Madame C.J. Walker – 1st Female African American Millionaire…and she did it in early 1900’s. Safe to say she had a lot of obstacles, but persevered and prospered. If you think you have more working against you than Madame C.J. Walker did, think again. Mary Kay Ash – The woman behind Mary Kay cosmetics. Redefined affiliate marketing. Howard Schultz – Who’s gonna’ pay $4.00 for a cup of coffee? With $2.5 billion plus in total revenue the answer at Starbuck’s is a lot! Alexander Graham Bell – Inventing the telephone in 1876 was about as wacky an idea as teleportation is today…did that stop him? King Croesus – Minted the world’s first coin in 6th century. Benjamin Franklin – Author, printer, inventor, businessman. Ray Croc – Where do you go for dinner when you spent all your money on $4.00 Starbuck’s coffee? McDonald’s! Franchising and national expansion (both stores and waistlines) would never be the same. Sam Walton – Speaking of saving money and expanding like crazy. Sam Walton found a niche and filled it, regardless of what you think of the extra traffic Wal-Mart brings to your neighborhood. Ernest Gallo – Took what was once an exclusive product and repackaged it for the masses. I was 20 years old before I knew wine came in anything but a “jug”. William Middlebrook – Giving William the nod for inventing the paper clip, although some debate remains. However, you have to include the inventor of the paper clip in this list since we’ve all said, at one time or another, “and whoever invented the paperclip is rich, and I’m still working in this crappy office!” Bill Gates – Took a risk and was a first mover in a market that exploded. Steve Jobs – Make your products easy and people will love to use them…making a dead sexy laptop doesn’t hurt either. Mayer Amschel Rothschild – Started the world’s first international bank in the mid 1700’s. What did you do today? Scrooge McDuck - Scrooge has emerged from being a mere supporting character to a major figure of the Duck universe. Parlayed early success into his own comic book series, television appearances, films, and video games. As big as David Hasselhoff in Europe, he seized opportunity when it arose. Russell Simmons – Worth $325 million, and started as a teen street hustler. A hip hop pioneer and visionary who has shaped the hip-hop scene of the early 80’s, has branched off into fashion, television and film. And I don’t care if you grew up in Brooklyn or Beverly Hills you remember “Russell Simmons Def Comedy Jam”. Ron Popeil – Net worth in excess of $100 million dollars. A consummate salesman, he had us believing we NEEDED a food dehydrator and spray paint to cover our bald spot! The Phoenicians – Inventors of the sail boat, and could be credited then with giving our early explorers the means to take over the western hemisphere. H. Ross Perot – Used a $1,000 loan from his wife in 1962 to start Electronic Data Systems. Became a billionaire as computer systems drove the need for electronic data storage. JP Morgan – How many people get credited with having saved or rescued the U.S. national economy in general—and the federal government in particular—on two separate occasions? Not many, and JP was a merger monger legend in his time. Charles Schwab – Founder and CEO of the Schwab Corporation, made having a broker cool and accessible. Worth $5.5 billion for his efforts. Larry Page – Google, need we say more? Sergey Brin - Google, need we say more? Philip Knight – In partnership with Bill Bowerman created Nike. What’s the reward for taking a product everyone uses and making it functional and fashionable? Try a net worth in excess of $9 billion dollars. George Lucas – Start with a vision, add some talent, and never waiver. Stars Wars is as well known on this planet as Coca-Cola, and Lucas is worth a cool $3.6 billion. Doctor John Pemberton – Pharmacist who in 1886 invented Coca Cola. Forced to change his formula from including wine due to prohibition his elixir with “tonic and nerve stimulant properties of the coca plant and cola nuts sweetened with sugar” became a sensation. Eberhand Anheuser- Founder of Anheuser Busch Brewing and Budweiser beer…thank you sir for the many mornings where I regretted the night before. Adolphus Busch - Founder of Anheuser Busch Brewing and Budweiser beer…bless you for allowing me to think I am funny, great looking, and a fabulous dancer for a few hours every Saturday night. Jeff Bezos – Founded Amazon.com in 1994, and wrote up the business plan for his company on a cross country drive from New York to Seattle. Was a .com entrepreneur before there was even a term for it. Thomas Kinkade - Americas most collected living artist. Marketing works people. Erno Rubik - Invented a puzzle only .000001% of the world population could solve without cheating, and sold millions! Marketing works people. Alex Tew - 21 year old entrepreneur made $1,000,000 off the “Million Dollar Homepage”. Adding him to the list to illustrate that great ideas are sometimes in plain sight. Didn’t we all think, “I wish I had thought of that”? Henry Hassenfeld - Owner of a textile plant in 1923 his company struck gold when they developed a way for kids to play doctor. The first toy the plant ever produced led the way for the likes of Mr Potato Head, GI Joe, Life, Yatzee, Candyland, and just about any other game we played as kids. Partners with his brother Helal Hassenfeld. Helal Hassenfeld - Thanks for the memories man, I still get misty eyed thinking about Cobra Comander and the words “YO Joe” will live with me forever. Rollin King - In 1965 started a regional airline serving 3 Texas cities. 40 years later Southwest Airlines has 3500 flights a day and is the number one airline in the United States and the World by number of passengers carried. Herb Kelleher - Partnered with Rollin King to start Southwest Airlines. The guy started an AIRLINE COMPANY for crying out loud, that’s ballsy. Guy Laliberte - Made the circus cool again. Founder and CEO of Canda’s Cirque du Soleil, Laliberte founded Cirque in 1984, and revolutionized the idea of what a circus could be. Cirque du Soleil has toured more than 100 cities around the world. Admiral Zheng He - Built the vaunted Treasure Fleets, comprising dozens of ships and tens of thousands of sailors, and led them in trade missions across south Asia and as far west as Africa and the Strait of Hormuz in the Persian Gulf. In seven voyages from 1405 to 1433, Zheng He spread China’s goods across the world and returned with treasures for the Ming Dynasty. Andrew Carnegie - The Scottish immigrant and weaver’s son built a steel empire whose mills churned out the railroads, ships, and structures of post-Civil War America. Milton Hershey - In 1905 built the worlds largest chocolate factory. His name has become synonymous with chocolate, which Americans consume more than 11 pounds of each year. Gary Dahl - A millionaire for selling rocks, pet rocks, enough said.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

RULE YOUR BUSINESS LIKE A SHINE STAR

Tips for the Novice Traveler

••••••>SEO Tip Of The Day: HTML Validation

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.