Nowadays, with the digitization and rapidity of investments, new solutions are born at an incessant pace, creating a market full of opportunities. SPAC is (an acronym for Special Purpose Acquisition Company) are tools that collect money from investors and channel them into companies to be listed on the stock exchange. They can be seen as containers full of publicly traded money looking for a company to invest in.
They create opportunities in two directions as they are a tool with little risk and ample room for maneuver for those who want to invest money and an opportunity for small and medium-sized enterprises looking for liquidity and know-how. They are, therefore, very practical financial vehicles and able to channel liquidity of professional investors on the real economy according to qualitative selection criteria.
How does a SPAC work
The SPAC was born with payment of the initial minimum capital by the first lenders (or sponsors). Once the company is formed, an extraordinary shareholders’ meeting is called, where the capital increase phase begins thanks to the IPO phase. The IPO (an acronym for Initial Public Offering) is when public investors can enter, bringing the additional liquidity necessary for listing on the stock exchange. Having reached this goal, legal consultants and an auditing company are appointed to start all the procedures for listing on the stock exchange.
At this point, the crucial phase is entered in which you will have to go and find the company to be acquired and listed on the stock exchange, that is, the actual investment. To carry out this research, you have a maximum time of 2 years from the moment of the SPAC’s listing on the stock exchange. The choice must be evaluated with extreme care as the company that will be fished will be merged with the SPAC, thus decreeing its entry on the stock exchange.
The greater regulatory flexibility that characterizes gores spac compared to the regulated market is evidenced by the less stringent requirements envisaged both in the admission phase and in the negotiation phase compared to the regulated market.
Advantages of SPAC
In this type of instrument, the investor is protected by a series of rules that follow him until the final stage. In fact, if the SPAC fails to identify a target company within the deadline, the company automatically fails, but the money invested is returned in full. During the IPO phase, the money is paid into a guarantee fund that cannot be touched until the shareholders approve the final merger.
Another advantage lies in the low costs as all fees and costs of the IPO are covered by initial promoters.
Furthermore, it is possible to exit without any penalty from the investment in case of dissent with the choice of the investment policy. Do not underestimate a good degree of liquidity of the investment that can no be found in other instruments such as private equity.
On the other hand, for the company that is chosen, gores spac have the clear advantage of an injection of liquidity and a managerial contribution from the initial investors or sponsors. Another very important advantage is the simplification of the listing process, which is done simply by merging with a company already listed on the stock exchange.
By reading this article, we hope you have understood what exactly SPAC companies mean and how they work.