What are they?
A Special Purpose Acquisition Company (SPAC) is fundamentally a shell company that is listed on an exchange with the sole intention of merging with another entity. The SPAC raises funds through an IPO, it then uses the funds to merge with (or be acquired by) an unlisted operating entity. As a result, the acquired entity will become publicly traded by way of the transaction, rather than undertaking its own IPO.
What’s all the fuss about?
Listing through a SPAC can provide companies with an array of benefits, which is what has driven their rise in popularity. This is a recent trend, despite the fact they have been around since 1993, when David Nussbaum and his fellow GKN Securities founders developed the template for what we now know as a SPAC.
- More access to capital – merging with a SPAC provides companies who might not be a reasonable candidate for an IPO in their own right, the ability to access capital that would previously be unattainable.
- Experienced management – a SPAC will usually come with a management board made up of individuals with significant experience in the sector in which they are targeting. A small or medium sized company using a SPAC to raise funding will also have access to the experience offered by the board members.
- Speed of completion – where a traditional IPO might take six months and sufficient expertise and resources to list directly, a merger with a SPAC can be completed in a three to four month timeframe which helps companies access funds raised much quicker.
How does this impact global expansion?
The driving factor in companies deciding to merge into a SPAC is, in the most part, access to funds. With this becoming an appealing, popular and increasingly straightforward option, we may see companies willing to forgo geographical convenience to relocate somewhere new that works for them.
SPACs are mostly used in the US (becoming increasingly popular during 2020) and we are seeing UK entities exploring this transatlantic opportunity as a viable option for their fundraising and expansion. Chancellor of the Exchequer Rishi Sunak will be commissioning a review of UK stock market rules and regulations in a bid to enable high-growth tech companies to produce SPACs with better acquisition opportunities. Without a doubt, SPACs will soon become a more frequent transaction seen in the UK markets too.
With London very much open for business, a long history of success for tech and fintech companies and now another technique available to access funds and promote growth – we’re set to enter a new phase in global expansion, with SPACs leading the charge.
For more information on SPACs or global expansion into the UK, contact Nick Whitehead.