Frequently Asked Questions
Quick answers to commonly asked questions about SPACs and spacHero.com
1. What's a SPAC?
A special purpose acquisition company (SPAC) is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.
2. How do SPACs work?
SPACs are generally formed by investors, or sponsors, with expertise in a particular industry or business sector, with the intention of pursuing deals in that area. In creating a SPAC, the founders sometimes have at least one acquisition target in mind, but they don't identify that target to avoid extensive disclosures during the IPO process. (This is why they are called "blank check companies." IPO investors have no idea what company they ultimately will be investing in.) SPACs seek underwriters and institutional investors before offering shares to the public.
The money SPACs raise in an IPO is placed in an interest-bearing trust account. These funds cannot be disbursed except to complete an acquisition or to return the money to investors if the SPAC is liquidated. A SPAC generally has two years to complete a deal or face liquidation. In some cases, some of the interest earned from the trust can be used as the SPAC's working capital. After an acquisition, a SPAC is usually listed on one of the major stock exchanges.
3. What are target companies for SPACs?
Most SPAC targets are start-up firms that have been through the venture capital process. Firms at this stage commonly consider several options: pursuing a traditional IPO, conducting a direct IPO listing, selling the business to another company or a private equity firm, or raising additional capital, typically from private equity firms, hedge funds, or other institutional investors.
SPACs can be an attractive alternative to these late-round options. They are highly customizable and can address a variety of combination types. Although targets are commonly a single private company, sponsors may also use the structure to roll up multiple targets. SPACs can also take companies public in the United States that are already public overseas and even combine multiple SPACs to take one company public.
4. What does SPAC status mean?
SPAC life-cycle can be broken into 5 main stages. spacHero scans SEC filings and news to figure out the stage of each SPAC and marks its status accordingly.
Pre-IPO: This is the initial stage of SPACs before they are listed on stock exchanges. SPAC files for registration and the initial S-1 stating the focus of the SPAC, trust size, terms etc.
Searching: In searching stage, SPAC stocks, units or warrants are listed and SPAC is actively searching for a target to merge with.
In-talks: Occasionally, rumors about a SPAC merger might be leaked without any official statement from any of the parties. Most of the time these rumors turn out to be accurate, but there is no guarantee during this stage.
Found Target: After SPAC finds a target company and signs a legally binding definitive agreement via filing an 8-K form to SEC. Even in this stage, deals can fall apart and SPAC might continue its search to find another target company. However, statistically most of the time, this stage results with the actual merger.
Completed: After the merger closing, SPAC ticker changes and the newly formed company begins trading in stock exchanges with its new ticker and name. These SPACs are called de-SPAC or completed SPACs.
5. What are SPAC units and SPAC warrants?
Each SPAC comes with a specific structure, which is specificed in the S-1 filing. Upon the initial IPO, most SPACs are listed as a unit, which composes of common stocks and a fraction of warrants. On the 52nd day of the IPO (sometimes even earlier), SPAC units can be split and commons and warrants start to trade as well. In case SPAC does not come with a warrant, they can be directly listed as a common stock.
You can find the unit description of SPACs on their individual pages, or on live tables. Estimated unit split dates are also listed in SPAC Calendar.