250
$80
see, most of the money raised has been focused on technology, media, and telecom (“TMT”), consumer, and general-opportunity SPACs... Legally, the sponsor can’t have a specified target already identified, otherwise it has to disclose that information in the registration statement. Again, these are experienced groups of managers who conduct a massive amount of research and due diligence to identify and decide on an investment opportunity. While they’re looking for a deal, the company makes regular periodic SEC filings – just like any other publicly listed company. Once the sponsors identify a company or asset to invest in, they formalize the legal documents around a potential acquisition and then announce the deal. The sponsors typically have a couple of years to identify an investment, though they often find one much sooner than that. 2017 2018 2015 2016 Average IPO Size Average SPAC Size 2015 2016 2013 2014
(If they don’t find one in that time frame, they go through a process to return the money to investors. In this case, you usually get most of your money back – typically 90% to 95% of your original investment. The portion you don’t get back is due to expenses the company incurs through the years to operate, conduct financial filings, etc. This happens rarely – only two out of 68 SPACs liquidated in 2020.) This is what makes SPACs a uniquely fantastic deal for investors: If you own shares of the SPAC, you basically get a free look at the investment... and if you don’t like it, you get your money back. Once management finds its target, the owners of the common shares can vote on whether to participate in the deal. If you vote “yes,” you’ll own shares in the new company once the transaction is completed. (The ensuing process of transforming into an operating company is called a “de-SPAC transaction” and typically takes three to five months.) If you vote “no,” you’ll get $0 $40 $20 $60 $0 $200 $100 $400 $300
200
150
100
50
0
2013 2014
2019 2020*
* Through September
2012
Source: SPACInsider, Dealogic 2017 2020 2018 2019
SPAC IPOs BY GROSS PROCEEDS
27%
4%
No Focus Energy
7%
your original $10-per- unit investment back... even if every other owner votes “yes.”
Entertainment Other/Various Other Tech Finance/FinTech Industrial Health Care
8%
17%
11%
This is what makes SPACs a uniquely fantastic deal for investors: If you own shares of the SPAC, you basically get a free
12% 15%
Source: Harvard Law School
American Consequences
63
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