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Category — General Notions

SPAC (Special-purpose acquisition company) is a company that is created for the purpose of merging with another private company that wants to go public without going through the IPO procedure. Such a mechanism for entering the exchange has a number of advantages. For example, it helps companies go through the process faster, with lower associated costs and extensive financial disclosure requirements than with a public IPO.

SPACs do not have any operations, assets, business plan, they are created solely to raise capital through an initial public offering for the purpose of acquiring or merging with an existing company. If this event does not occur, then the company self-liquidates. When buying shares of a SPAC company, an investor often does not know what he is investing his own funds in, but trusts the investment experience of sponsors - SPAC organizers.

The life of such a company begins with its formation. Next, SPAC conducts an initial placement. All funds raised are kept in special escrow accounts. Until a certain event (in this case, a merger or dissolution of SPAC), the account is frozen, and a third party, represented by the bank, guarantees the safety of funds. If a SPAC company finds an object for a merger, then the account is unfrozen - and a merger transaction is made using the money stored there, and investors receive shares in a public company. If after two years (less often - 18 months) the SPAC company could not find an object for the merger, the money on the escrow account is returned to investors in full. Under SEC rules, SPAC is required to spend at least 80% of the funds raised on a single asset. Private companies merging with SPAC can convert their shares into SPAC shares at a ratio of 1:1, after which the SPAC ticker changes to the ticker of the new public company.
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