One way for the companies to commence with public listing is through a SPAC. How does a public listing with a SPAC as the mediator work? Why do numerals promising companies opt for this scheme?
Let’s start with the basic. What is actually a SPAC? SPAC stands for Special Purpose Acquisition Companies. These companies, simply said, are empty companies with no activity whatsoever. Investor Junkie calls these companies as a “blank check company”. The person who manages the companies are referred to as “sponsors,” and usually are experts in a specific industry.
How do companies go public through a SPAC?
First off, a sponsor needs to build a SPAC. Once the sponsors invest their own money to the SPAC, they can then announce the SPAC. The sponsors will then raise funds from the stock market by listing on an exchange. The law prohibits SPACs from any operations. Hence, it’s comparably easier to list SPACs on the stock market.
Once the SPAC is listed, it is now the time for the sponsor to set a deal with a company to work with. Sponsors only have two years to sign on a deal, or they must return all the money back to the investors. When a SPAC lands a deal with a new company, both companies will merge and list them on the exchange in a SPAC IPO. However, the acquired company’s name will take over the SPAC’s name on the market.
A SPAC does not reveal its acquisition target beforehand. Sponsors could end up wasting time taking care of disclosure law. Hence, investors need to choose a trustworthy sponsor. This is also one of the reasons why sponsors used to be people who expertise in a certain field. However, with how the IPO scheme through SPAC has been gaining interest from numerals company, sponsors are now not limited to experts only. Investors, hedge fund managers or local experts have the same chance to manage SPACs.
Why SPACs become the next big scheme for companies
Practicality is one of the main reasons companies have been looking into public listing through SPACs. SPACs save a lot of time and money for companies wanting to go public. Processes to put a company for public listing have been managed by the SPACs. The companies also evade lengthy and costly underwriting fees since they are not affiliated to investment banks. Additionally, they might save more money for marketing the IPO since they have strong sponsor back-up.
Read also: Traveloka Considers IPO, to Merge with a SPAC?
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