![]() Some have claimed that listing via a SPAC is cheaper than a traditional IPO. In a recent study, the median redemption rate for institutional investment managers was 73%, while an additional 25% sold their shares, for a total divestment rate of 98% pre-merger. We see this in the data, where a majority of shareholders will vote for a merger, but yet redeem or sell their shares. Importantly, these founder shares are different than the listed shares sold to investors, in that founder shares cannot be traded until a merger is consummated.īecause their shares do not pay off unless a merger closes, SPAC founders have a strong incentive to merge with a target even if it is a losing proposition, with the inherent costs of the SPAC being passed on to those shareholders who do not redeem their shares. ![]() The SPAC founder receives 20% of the outstanding shares of the listed SPAC for a minimal cost as compensation for creating and managing the SPAC. After a merger deal is approved, if the SPAC shareholders do not think the merger will create value, they can redeem their shares from the SPAC for $10, if they wish, while keeping their warrants.Įach SPAC has a founder who manages the SPAC from its inception through the completion of the merger. The trust cannot be drawn until closing its merger with a target company, except in very specific conditions. After its listing, the SPAC simply holds the cash received from its IPO in a trust account. A unit consists of one share of stock in the SPAC and typically a fraction of a warrant, which grants the owner the right to purchase a SPAC share at $11.50 after the SPAC merges with its target. Note that, once listed, the SPAC has two years to merge with a target or it must be liquidated.Īt the start of its life, the SPAC conducts an IPO by selling units at $10 each. Once a SPAC closes its merger, the target company is listed, replacing the SPAC shell company on the stock market. The SPAC is incorporated, listed on an exchange, looks for a target to merge with, and negotiates a merger deal, which is then voted upon by the SPAC shareholders if approved, the SPAC then merges with the target company. ![]() The lifecycle of a SPAC is straightforward.
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