What is a SPAC
SPAC is a "blank cheque" company established to acquire companies. They are made up of individuals with experience and reputation, enabling them to identify and acquire one or more target companies that will eventually become successful listed companies.
How it works: SPAC to a SPAC merger
1. Formation and IPO stage
2. Target search
4. Reach an agreement
5. General Meeting of Shareholders
6. Complete SPAC merger (de-SPAC)
Special Purpose Acquisition Companies (SPACs) can list on the Mainboard of Singapore Exchange (SGX).
SGX’s SPAC gives companies an alternative capital fund raising route. SGX will focus on the sponsors’ quality and track record.
An SGX listing under the SPAC framework must have the following key features:
Minimum market capitalisation of S$150 million
De-SPAC must take place within 24 months of IPO with an extension of up to 12 months subject to fulfilment of prescribed conditions
Moratorium on Sponsors’ shares from IPO to de-SPAC, a 6-month moratorium after de-SPAC and for applicable resulting issuers, a further 6-month moratorium thereafter on 50% of shareholdings.
Sponsors must subscribe to at least 2.5% to 3.5% of the IPO shares/units/warrants depending on the market capitalisation of the SPAC
De-SPAC can proceed if more than 50% of independent directors approve the transaction and more than 50% of shareholders vote in support of the transaction
Warrants issued to shareholders will be detachable and maximum percentage dilution to shareholders arising from the conversion of warrants issued at IPO is capped at 50%
All independent shareholders are entitled to redemption rights
Sponsor’s promote limit of up to 20% of issued shares at IPO
SPAC target company
- Company of critical size valued at more than US$200 million
- Industry, healthcare, consumption, energy and high-growth technology fields
- Digital-driven companies have flexible business models and rapid growth potential in the new world
Key benefits of listing via SPAC
For many reasons, private companies may consider acquiring or merging with SPAC. They can retain agreed equity stake and raise funds. It also enables companies to speed up the time required to go public and reduce fund raising costs.
ter fees and 3.5% Completion fees
- Listing timeline
Short time frame
- Easy access to capital and the potential to sell more company shares
SPAC enables private companies to enter the open market, especially during periods of market instability, and helps to open the door to permanent capital. Before acquiring a private company target, SPAC raised funds through an IPO. If it needs additional funds to complete the transaction with the private company's target, it can raise funds in various ways, including private investment in public equity (PIPE).
In addition, SPAC transactions generally allow private company owners seeking an exit strategy the opportunity to sell more of the company's shares.
- Greater market certainty
Through SPAC, the target company can negotiate the "lock-in" price of its stock with the SPAC sponsor as part of its agreement and avoid potential valuation shocks when the market fluctuates.
- Flexible deal terms
The valuation can be determined based on the prior negotiation between the SPAC sponsor and the target company. In addition to being able to negotiate favorable deal terms, such as valuation (the company's sales price to SPAC) and additional investment through public equity, the appointment of the board of directors with SPAC sponsor, SPAC transactions also provide flexibility to negotiate other parts of the deal. For example, if the investor decides to withdraw the capital before the completion of the acquisition, the SPAC sponsors may agree to fund any cash shortfalls when the acquisition is completed.
- Access to experienced manager and management support
SPAC gives the company access to the experienced management team of the SPAC sponsor, who usually have a successful track record and a long history of outstanding performance in M&A activities. Working with strong sponsor allows the target company to benefit from its resources and experience. When additional funds are needed, experienced sponsor may be able to help. It may also use its network to build a strong management team for the target.
Key challenges of listing via SPAC
- Potential cost increase
When the SPAC is established, it issues common shares and a fraction of the warrants for the purchase of common shares in the IPO. Once the SPAC transaction is completed, the warrants can be exercised. Due to the dilutive nature of the warrants, the economic costs of SPAC transactions may increase.
- Possible loss of control
Private companies and their owners may lose some control because SPAC sponsors may negotiate representation on the board and participate more actively in the post-transaction company.
- Public company preparation
SPAC transactions usually need to be completed within a short period of time, and the timetable is usually set by SPAC. Although a short window may mean that the private company will go public soon, the set deadline may place a heavy burden on the target company and its management team. This means that companies that are merged and listed through SPAC may need to meet the timetable for expediting the preparation of going public, due diligence, drafting of the prospectus, and regulatory oversight.
How Bestar can help
Bestar identifies growing companies. We provide guidance throughout the SPAC merger process, including tax structure and due diligence support, as well as assurance on historical financial statements and financial forecasts, and provide due diligence to underwriters through the comfort letter procedure for historical financial information contained in the prospectus .
If you would like to know more, please contact Bestar.