Special-purpose acquisition company
In addition, the public currency enhances the position of the SPAC when negotiating a business combination with a potential merger or acquisition target.
[citation needed] By market convention, 85% to 100% of the proceeds raised in the IPO for the SPAC are held in trust to be used at a later date for the merger or acquisition.
All common share stockholders of the SPAC are granted voting rights at a shareholder meeting to approve or reject the proposed business combination.
[citation needed] The SPAC is usually led by a management team composed of three or more members with prior private equity, mergers and acquisitions, and/or operating experience.
The management team of a SPAC typically receives 20% of the equity in the vehicle at the time of offering, exclusive of the value of the warrants.
The equity is usually held in escrow for two to three years, and management normally agrees to purchase warrants or units from the company in a private placement immediately prior to the offering.
In many cases, management teams agree to pay for the expenses in excess of the trusts if there is a liquidation of the SPAC because no target has been found.
[12] In July 2007, Pan-European Hotel Acquisition Company N.V. was the first SPAC offering listed on the Euronext Amsterdam, raising approximately €115 million.
The first German SPAC was Germany1 Acquisition Ltd., which raised $437.2 million at Euronext Amsterdam with Deutsche Bank and I-Bankers Securities as underwriters.
Their history began with investment bank GKN Securities, specifically, founders David Nussbaum,[21] Roger Gladstone, and Robert Gladstone, who later founded EarlyBirdCapital with Steve Levine and David Miller (currently managing partner of Graubard Miller law firm) and who developed the template.
Full disclosure of the SPAC structure, target industries or geographic regions, management team biographies, share ownership, potential conflicts of interest and risk factors are standard material covered in the S-1 registration statement.
It is believed that the SEC has studied SPACs to determine whether they require special regulations to ensure that these vehicles are not abused as blind pool trusts[clarification needed] and blank-check corporations have been over the years.
[citation needed] In 2022, Elizabeth Warren released a report showing that Wall Street insiders were using SPACs in ways that harmed investors, and called for regulations to curb the abuse.
[27][28] On January 24th, 2024, the SEC unveiled new rules for Special Purpose Acquisition Companies (SPACs), introducing clarifications to enhance regulatory transparency and integrity without significantly altering the existing framework.
Critical updates include maintaining the current stance on SPACs under the '40 Act and the definition of banks as underwriters while refining the criteria for forward-looking statements by redefining "blank check company" and eliminating one safe harbor provision.
[29] Additionally, the SEC has encouraged more realistic management projections for DeSPAC transactions and required detailed disclosures on board votes and the dilutive impacts of compensation and securities issuances.
[29] These developments aim to enhance transparency and integrity within the SPAC ecosystem, reflecting a cautious approach to regulation without fundamentally altering existing practices.
[33] In a March 2020 event, Allison Lee, acting chair of the SEC, said that the "investment returns don't match the hype surrounding the SPAC bubble.
