What is a SPAC?
Special Purpose Acquisition Companies (“SPACs”) are companies formed to raise capital in an initial public offering (“IPO”) with the purpose of using the proceeds to acquire one or more unspecified businesses or assets to be identified after the IPO
SPACs are attractive because they allow the investor to co-invest with sponsors that have the requisite industry knowledge, expertise and access to potential acquisition targets that may not otherwise be available to investors through the public markets.
The SPAC structure is also appealing because of its “money back” features. If the SPAC does not identify a suitable initial acquisition target within a specified timeframe then, absent agreeing an extension, investors are entitled to the return of their investment.
Why U.K. will become the preferred destination?
- An acquisition by a Standard listed SPAC involves reduced execution risk as no shareholder approval is needed allowing the acquisition to be closed more quickly
- The directors of a UK SPAC have more autonomy when identifying the acquisition target or targets
- The directors have more flexibility in the use of the funds in the short-term
- Unlike the UK, in the US, shareholders of the SPAC are typically granted redemption rights allowing them to redeem their shares of common stock for a pro rata portion of the trust account.