INSIGHT: Private Equity and SPACsA Mutually Beneficial Relationship In a de-SPAC transaction, price is determined early on through negotiation. SPACs enter into a letter agreement with their officers, directors and sponsor. After an acquisition, a SPAC is usually listed on one of the major stock exchanges. (See below.) Additionally, the IPO prospectus will typically include a statement that the SPAC will not consider a business combination with any company that has already been identified to the private equity group as a suitable acquisition candidate. The major differences between SPAC and blank check companies/penny stock issuers are that SPAC equity may trade on an exchange prior to the SPACs business combination, brokers are not subject to heightened requirements on trades in SPAC securities, SPACs have a longer time period to complete their business combinations and SPACs are not prohibited under SEC rules from using interest earned on the trust account prior to the business combination. In certain circumstances, such as the absence of an effective registration statement covering the common stock issuable upon exercise of the public warrants or at the option of management, the public warrants may also be net settled. Shareholders of the target receive SPAC stock in exchange for their target shares. [6] The NYSE rules have recently changed, such that the NYSE and NASDAQ listing requirements are substantially similar, and pricing is comparable. For example, the warrant agreement can be amended by a vote of the warrant holders, the registration rights agreement can be superseded by a stockholders agreement, charters and bylaws are often amended, etc. Also, the targets management team will likely continue in their roles in the surviving company, while benefiting from a new partnership with a well known sponsor team. A de-SPAC transaction will ordinarily take less time overall to consummate than an IPO. In cases where the forward purchase commitment comes from a private equity fund or other investor with a limited investment mandate, it may be appropriate to condition the obligation of the investor on the De-SPAC transaction satisfying the investment mandate of the investor. Newcourt SPAC Sponsor LLC ("Sponsor") Sponsor is organized under the laws of the State of Delaware. The sponsor of the SPAC will purchase warrants in an amount equal to the 2.0% upfront underwriting discount of the IPO (see below), plus funds to cover the offering expenses and expenses to find a target, with the aggregate price of the purchased warrants in most recent deals hovering between 2.3% to 3.0% of the gross IPO proceeds. 3. On the other hand, the De-SPAC transaction involves many of the same requirements as would be applicable to an IPO of the target business, including audited financial statements and other disclosure items which may not otherwise be applicable if the target business were acquired by a public operating company. However, most will not be prohibited from pursuing businesses or assets in any industry sector or geography. The SPAC enters into a registration rights agreement with the sponsor and any other holders of founder shares and founder warrants (typically the SPACs independent directors), giving the sponsor and such other holders broad registration rights for the founder shares, founder warrants and other equity the sponsor and such other holders own in the SPAC. In the current market environment, SPAC sponsorship represents an unprecedented opportunity for a qualified sponsor team to access capital and engage in the acquisition of established companies in the sector or sectors in which the sponsor team has expertise and experience. SPACs are: "Blank cheque" companies formed for the purpose of acquiring companies. SPAC Sponsorship - Compehensive SPAC Guide by ClearThink Capital Both, however, are 15% of the base offering size. Alternatively, the types of assets the SPAC is designed to pursue may not be within the general investment mandate of an existing fund. That acquisition or combination is known as the initial business combination . This will result in a more involved transaction structure and may introduce complex tax issues. (go back), 6For example, the NYSE listing rules required a shareholder vote and imposed a maximum 40% redemption requirement as a condition to consummate the De-SPAC transaction. The IPO proceeds will be held in a trust account until released to fund the business combination or used to redeem shares sold in the IPO. On the other side of the ledger, SPACs offer founders and equity investors in growth stage private companies a viable alternative to a traditional IPO, with a shorter, more definitive and simpler runway to completion. A SPAC can provide several benefits for target companies, including: The SPAC approach to an IPO takes much less time to complete as compared to a traditional IPO, therefore the amount of time needed to work with investment bankers, attorneys and other professionals to take a company public is potentially reduced. Much of the information in the Super 8-K will already have been included in the SPACs proxy statement or tender offer materials for the De-SPAC transaction, but the Super 8-K may require additional financial statement information for the target business. EX-10.16 12 rubicontech_ex10-16.htm EXHIBIT 10.16 . Sponsors and their investors get the opportunity to invest in a growth stage company or other attractive target, carefully selected to match their investment criteria, with substantial upside opportunity. The timing of the issuance of the founders shares should be carefully planned to avoid undesirable tax consequences for the sponsors. Many contain features to automatically extend the period if a definitive agreement or letter of intent is signed by the end of the specified period or upon contribution of additional capital into the trust account by the sponsor. Special Purpose Acquisition Companies: An Introduction 1. SPAC . For more information on the tax treatment of SPAC sponsors, see BDOs article BDO Knows SPACs: Tax Treatment of SPAC Founders Shares. adjustments. The sponsor and any other holders of founder shares will typically commit at the time of the IPO to vote any founder shares held by them and any public shares purchased during or after the IPO in favor of the De-SPAC transaction. Who should lead the charge? The management team that forms the SPAC (the "sponsor") forms the entity and funds the offering expenses in exchange for founder's shares. According to reports in the financial press, the current SPAC market could not be more active. The remaining ~80% interest is held by public shareholders through "units" offered in an IPO of the SPAC's shares. Warrants received by sponsors that have employment arrangements with the SPAC may be treated as compensatory warrants issued for services. Historically, most SPACs have listed on the NASDAQ because the NYSE listing rules were considerably more restrictive than the NASDAQ rules. These White Rino shells are part of the Exacta Target line of ammunition. After the IPO, the SPAC will pursue an acquisition opportunity and negotiate a merger or purchase agreement to acquire a business or assets (referred to as the business combination). The primary capital pool for SPAC investments comes from institutional investors. Following shareholder approval, the SPAC and the target will complete the business combination, and both the target equity holders and the SPAC investors will become shareholders in the surviving company. The holders of the founder shares will agree, to the extent the green shoe is not exercised in full, to forfeit a number of shares so that their number of founder shares continues to equal 25% of the number of public shares actually sold to the public. The restrictions apply to SPACs and former SPACs for varying periods depending on the specific rule. In part, this is attributable to the SEC staffs typically lengthy review of an IPO registration statement. Partners that materially participate in the business can avoid the net investment income tax on the exchange of their partnership interest for the publicly traded shares. The SEC often requires [8] disclosure in the IPO prospectus to the effect that the SPAC currently does not have any specific business combination under consideration and that the SPACs officers and directors have neither individually selected nor considered a target business for the business combination nor have they had any discussions regarding possible target businesses among themselves or with underwriters or other advisors. The units sold to the public typically include a fraction of a warrant to purchase a whole share, while the sponsor purchases whole warrants. Study Manager - Epidemiology Operations EisnerAmper discusses a summary of CARES Act and how self-employed individuals . Accounting Considerations for SPACs | BDO Knows SPACs | BDO They do, however, disclose the industry or geographic focus of the target business(es) they will pursue and the experience of their management in the relevant industry. The SPAC Explosion: Beware the Litigation and Enforcement Risk However, in recent years companies such as Whisker Seeker and Team Catfish have stepped up to the mark and filled a well-undeserved space the big name brands are lagging far behind. Typically, this capital is raised in the form of either a forward purchase arrangement or a so-called private investment in public equity, or PIPE, transaction. Most private companies either do not have audited financial statements or have financial statements audited under the AICPA rules. For example, in several recent SPAC IPOs, the sponsor transferred between 30,000 and 40,000 founder shares to each of the SPACs independent directors. The offshore structure will introduce other tax issues, such as passive foreign investment company issues. What is a SPAC? Explaining one of Wall Street's hot trends - CNBC As compared to operating company IPOs (referred to herein as traditional IPOs), SPAC IPOs can be considerably quicker. 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