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Understanding SPACs

A SPAC — Special Purpose Acquisition Company (also known as a “blank check” company) — is a relatively simple concept…in theory:Screen Shot 2021-03-04 at 9.05.29 AM

  1. Form (and fund) a Sponsor entity to move the process forward.
  2. Create a NewCo (SPAC) whose sole purpose is to create a public shell. NewCo designed to do nothing but raise money and merge with another company.
  3. Find an underwriter to handle a public offering.
  4. Take NewCo public.
  5. Fund NewCo by selling “units” to the public. A unit is generally a share plus a warrant thrown in to encourage buyer participation. Money raised is kept in a trust fund
  6. Find a merger Candidate. There is usually a permitted timeline (usually 18 to 24 months) during which NewCo has to either sign a merger deal or return the raised funds (minus some permitted expenses) to investors.
  7. Merge NewCo with Candidate.
  8. NewCo disappears, Candidate survives.

See also: What You Need to Know About SPACs – Investor Bulletin, Securities and Exchange Commissipn