The Basics of SPACs

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 (irrespective of form, a “Business Combination”).

SPACs have only a limited period during which they may consummate a Business Combination, generally not exceeding 24 months.

A SPAC generally focuses upon one industry or sector, but may maintain flexibility to engage in transactions in other industries or sectors if necessary or appropriate.

The group of people who form and provide the risk capital for a SPAC are referred to as “Sponsors”. The Sponsors must invest a portion of capital to cover the expenses of the SPAC, as the IPO proceeds are placed entirely in trust until the point of Business Combination.

SPACs have the following characteristics:

• Fully Registered Initial Public Offering: Publicly listed, liquid vehicle
• Trust Account: IPO proceeds held in trust and generally invested in liquid short-term instruments. Stockholders may redeem shares for cash if they don’t find a business combination compelling, or if sponsors fail to identify a target
• Sponsor Risk Capital: Sponsor funds vehicle to cover expenses and show commitment to SPAC
• Warrants: Provide upside optionality and yield to investors
• Sponsor Promote: Provides attractive upside to sponsors upon successful completion of business combination. Lock-up and vesting tied to share performance align interests
• SPAC Deadline: Sponsors have a finite period of time to complete a business combination, giving investors visibility on annualized yield. Once a business combination closes, the entity becomes an operating public company

1. You invest in the SPAC IPO at $10/share.
2. The IPO proceeds are held in a trust account at a major financial institution and cannot be accessed by the company unless there is a business combination. The trust is invested in Treasury securities and similar short-term secured debt obligations.
3. For your investment, you receive a unit in the SPAC, consisting of one common share (representing $10 in the trust plus interest), and generally a warrant to buy ¼-1 additional share for $11.50.
4. The SPAC tries to find a target company with which to merge or to acquire within two years, or less, depending on the terms of the SPAC, resulting in the company being public (a “Business Combination”)
5. If the SPAC fails to find a company to take public, or the Business Combination is not approved, you receive your initial investment of $10 with interest.
6. During the time between the closing of the offering and the business combination, your shares and warrants are freely tradable in a highly liquid market, and can be sold throughout the process.
7. If the SPAC business combination is approved, the trust is released to the company, resulting in your and your fellow shareholders shares (and warrants) representing an interest in the new combined company.
8. When the SPAC finds a company with which to merger or to acquire, you are given the choice to either:
9. (a) maintain your investment in the combined public company, or
   (b) get your $10 back, with interest.

SPAC Capital Structure has been largely standardized

SPAC units consist of one share of common stock and warrants (ranging from 0.25 warrants to multiple warrants) for a purchase price of $10 per unit.

SPAC IPO Gross Proceeds, other than a portion of the underwriters’ commissions, are placed into a Trust Account for the benefit of investors. The funds are released, net of redemptions, only upon the consummation of a Business Combination or liquidation of the SPAC.

• Provide initial capital in exchange for founders shares prior to the IPO
• Sponsors customarily receive a 20% stake in the SPAC at IPO
• At IPO, the sponsors provide risk capital in exchange for purchasing units or warrants
• Founders’ shares or securities purchased by the sponsor and others in the sponsor’s risk capital private placement do not participate in the event of the liquidation of the SPAC

• The public investors buy units in the IPO at $10/unit
• Units are typically one common share and a quarter to full warrant
• Common shares have redemption rights to receive prorata share of IPO proceeds held in trust
• Warrants terms are usually: $11.50 strike price, expire 5 years from date of business combination, and mandatory redemption when stock hits a predetermined level

• Gross IPO proceeds are placed into a trust account which invests in US treasuries or tax-free money market funds
• The trust account is only released upon a successful Business Combination, to fund stockholder redemptions, or in the event of liquidation
• The trust account provides the SPAC public common share holders with a minimum liquidation value

• Having funding prior to discussion with potential targets speeds closing and validates the sponsor
• Public listing provides arbitrage opportunity
• Enhanced liquidity
• Quick to market
• Opportunity to quickly achieve unparalleled value escalation

• Having funding prior to discussion with potential targets speeds closing and validates the sponsor
• Public listing provides arbitrage opportunity
• Enhanced liquidity
• Quick to market
• Opportunity to quickly achieve unparalleled value escalation

• Can trade and monetize shares and warrants
• Experienced management team brings proprietary deal flow
• Redemption feature provides downside protection on investment
• Public listing provides full reporting and transparency
• Stockholder can decide whether or not to participate in Business Combination

• Far less risky than traditional IPO
• Much quicker than traditional IPO
• Less costly prior to going public

To consummate a successful business combination, the target company must meet the following criteria:

• Target company must be audited
• Value of target company must be at least 3x to 5x the gross proceeds of the SPAC IPO
• SPAC capital will accelerate target company growth
• Target company is seeking a reasonable valuation with a focus on stock-for-stock merger transaction