SPAC is also known as “The Blank Check Company”. After SPAC launches and shares trades in the stock exchange, the raised capital will be safely deposited into a third-party custodian. The money, which will earn interest, will be locked for 2 years maximum.
As soon as the IPO is completed, the Management team starts searching for a private company to acquire and negotiating with responsible people in the targeting company. After reaching an acquisition agreement with the target, the Management team has to propose their plan to the shareholders and start voting to get shareholders’ consensus. The acquisition process can be kicked off and money can be withdrawn from the custodian account for settlement when the majority shareholders support the deal. Shareholders, who do not agree to the acquisition, can redeem their shares and get their money back from the custodian.
When the acquisition is completed, SPAC and the acquired company will merge into one company. The stock exchange will assign a new industrial classification and new stock code to the merged company, meaning DE-SPAC. In 2019, Social Capital’s IPOA SPAC acquired Virgin Galactic, the SPAC ticker ‘IPOA’ was replaced by ‘SPCE’ immediately.
However, if the Management team is not able to complete an acquisition within 2 years, the SPAC will be dissolved and the capital less IPO fee will be refunded to all investors.
Written by Ms. Florence Ip