SPACs: definition and explanation of the phenomenon
SPACs, or Special Purpose Acquisition Companies, are a big hit in the financial world today. This mechanism by which a listed company takes over, started at the turn of the 1990s in the United States, and in the mid-2000s in Europe. But it is really in the last few years that these companies have flocked to the financial markets, until creating a speculative bubble on the stock markets in 2021. Let's go back together on this investment method like no other!
What is a SPAC?
A SPAC is a company created with the sole purpose of raising capital through an IPO (initial public offering). The investors, individuals and/or professionals, are thus holders of shares of this company, and thus contribute indirectly to a fund. The funds raised are then used to acquire a third party company, often not listed on the stock exchange. The final objective is therefore the indirect IPO of a non-listed company, through its acquisition by an already listed company, thus avoiding the excessive costs involved in an IPO.
A SPAC has no operational activity and generally only holds the funds raised during its own IPO. If the planned acquisition does not succeed, the company is obliged to return the funds.
How does a SPAC work in practice?
There are generally three key steps:
1. Creation of the SPAC: The main actors who can launch a SPAC are company managers, investment bankers, investment funds or hedge funds. The latter rely on their reputation in a specific sector or field of activity to raise a maximum of funds from investors.
2. IPO: To manage the IPO efficiently, SPAC's management mandates an investment bank. The latter will be granted a commission of about 10% of the IPO proceeds.
3. Acquisition of the target company: Once the capital has been raised, the management team has approximately 2 years to identify and acquire a target company, whose book value must represent at least 80% of the assets of the SPAC. As mentioned above, this acquisition can be a godsend for the target company, which avoids all the uncertainties associated with a traditional IPO.
