SPAC IPO PROCESS OVERVIEW

The Process of an IPO of a SPAC

In my short series about Special Purpose Acquisiton Companies (SPAC) I will explain you the process of a SPAC IPO:

Prior to the IPO, the founders of the SPAC invest a small amount of initial capital to form the SPAC and hold all of the pre-IPO equity. A SPAC will typically sell units consisting of one class A common share and 1/3 of a warrant in the IPO at a price of $10.00 per unit. The market custom is that only units are tradeable for the first 52 days after the IPO, after which the class A common shares and warrants trade separately. The founders retain their 20% equity ownership through class B common shares, which are commonly referred to as “founder shares.”

Only the founder shares are entitled to vote on the election of directors prior to the initial business combination, which allows the founders to retain control of the SPAC until it becomes an operating business. Most SPACs list on Nasdaq, which has favorable listing requirements for SPACs. However, Nasdaq rules subject SPACs to similar corporate governance requirements as are imposed on operating companies, so SPACs will have an audit committee made up of independent directors and a majority independent board of directors.

The underwriting discount for a SPAC IPO is typically 6%, with 2.5% paid at the time of the IPO and an additional 3.5% paid when the SPAC successfully completes an initial business combination. Typically, the underwriting discount is paid for through a private sale of warrants to the founders.

The IPO process typically takes between 4 months. Many SPACs make their first registration statement filing confidentially with the SEC, which allows the founders to advance the IPO process with the SEC without having to announce it to the public until closer to the time of the IPO. Since SPACs qualify as “emerging growth companies,” the founders can take advantage of certain accommodations, including reduced disclosure requirements and exemptions from certain Sarbanes-Oxley requirements. 

Sincerly yours,

Greg Gaylor