In determining to pursue a de-SPAC transaction, target equity holders will have to weigh these factors against the benefits of taking the de-SPAC route. Contract Type . EisnerAmper discusses a summary of CARES Act and how self-employed individuals . These include, for example: While a partnership target cannot be acquired by a SPAC in a tax-free reverse triangular reorganization or merger, businesses operating as partnerships that want to go public have the option of a traditional incorporation and IPO, an umbrella partnership C corporation (Up-C) structure, or an umbrella partnership SPAC (Up-SPAC) structure, all of which have their own tax consequences. SPACs enter into a letter agreement with their officers, directors and sponsor. In a SPAC IPO, the underwriters will receive a discount of 5.5% of the gross proceeds, but only 2% of the discount will be paid at the closing of the IPO. The de-SPAC transaction is generally structured to be tax-free to the target shareholders, provided the merger meets the statutory requirements needed to qualify as a tax-free reorganization for federal income tax purposes. After the de-SPAC, the capital structure from the perspective of the target equity holders will oftentimes be similar to what it would have been had the target conducted an IPO. The sponsor will pay a nominal amount (usually $25,000) for a number of founder shares that equals 25% of the number of shares being registered for offer to the public, inclusive of the traditional 15% green shoe. The remaining ~80% interest is held by public shareholders through "units" offered in an IPO of the SPAC's shares. Generally, a SPAC is formed by an experienced management team or a sponsor with nominal invested capital, typically translating into a ~20% interest in the SPAC (commonly known as founder shares). The sponsor files the registration statement publicly at the time it addresses the comments of the SEC staff. Stock exchange rules do not always require a vote by the SPAC shareholders, but the structure of the De-SPAC transaction (e.g., if the SPAC does not survive a merger or is re-domiciling in a different jurisdiction) may require a vote, and if more than 20% of the voting stock of the SPAC is being issued in the De-SPAC transaction (to the seller of the target business, to PIPE investors or to a combination), the stock exchange rules will require a shareholder vote. 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. A SPAC will file a registration statement on Form S-1 with the U.S. Securities and Exchange Commission to register the units, the public shares and the public warrants issued in its IPO. The SPAC also enters into an investment management trust agreement with a trustee, which governs the investment and release of the funds held in the trust account after the IPO. Unlike the public warrants, which are registered in the IPO, the private placement warrants are restricted securities. The 20% founder shares are often referred to as the promote.. The SPAC and the sponsor (or an affiliate of the sponsor) enter into an agreement pursuant to which the sponsor (or the affiliate of the sponsor) provides office space, utilities, secretarial support and administrative services to the SPAC in exchange for a monthly fee (typically $10,000 per month). [10] SEC regulations prohibit or limit the use by shell companies (SPACs) and former shell companies (former SPACs) of a number of exemptions, safe harbors and forms that are available for other registrants. The U.S. capital markets have seen record levels of merger and acquisition activity over the last few years, including record use of special purpose acquisition companies (SPACs) to facilitate initial public offerings (IPOs). Sponsors may earn a substantial return on their at-risk capital and promote, in return for identifying suitable operating business combination targets. In addition, the publicly traded shares will have a stepped-up basis when subsequently sold in the market. If the business combination transaction closes, investors choosing to remain with their investment will enjoy potential upside both in their shares and their warrants. The features of the SPAC world described in this primer give some insight into why this may be so. Repairable, Salvage and Wrecked H&H Trailer Auctions. Office Depot #646 - 201 E Tudor Road in Anchorage, Alaska 99503: store location & hours, services, holiday hours, map, driving directions and more. This is inaccurate. 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. Following the announcement of signing, the SPAC will undertake a mandatory shareholder vote or tender offer process, in either case offering the public investors the right to return their public shares to the SPAC in exchange for an amount of cash roughly equal to the IPO price paid. The offshore structure will introduce other tax issues, such as passive foreign investment company issues. 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. Shareholders of the target receive SPAC stock in exchange for their target shares. 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). Historically, SPAC Sponsors needed to raise an amount to serve as risk capital or "sponsor capital" equal to between 3% and 5% of the projected public capital raise for the SPAC. The warrants become exercisable on the later of (i) 30 days after the De-SPAC transaction and (ii) the twelve-month anniversary of the SPAC IPO. SPACs cannot identify acquisition targets prior to the closing of the IPO. focuses on legal issues of interest to M&A practitioners for private and closely held companies, providing explanation, analysis and practical application on timely topics. In part, this is attributable to the SEC staffs typically lengthy review of an IPO registration statement. The public warrants are designed to be cash settledmeaning the investors have to deliver $11.50 per warrant in cash in exchange for a share of stock. The warrant agreement provides that the terms of the public warrants generally can be amended with the approval of holders of 50% of the public warrants. A private equity fund considering a public company exit from a portfolio company would also be looking to an IPO. (See below.) BDO professionals are dedicated to helping both sponsors and target companies navigate the complexities of SPAC transactions and can deliver expertise and support in any step of the process. We use cookies on this website to optimize user experience and site functionality and to give you the best possible experience. Formed by individuals with experience and reputations to allow them to identify and acquire one or more target businesses that will ultimately be successful public company/s. However, SPACs are not blank check companies within the scope of Rule 419 because SPACs have charter restrictions prohibiting them from being penny stock issuers (the term penny stock generally refers to a security issued by a very small company that trades at less than $5 per share). The merger generally needs to happen within 18-24 months of the IPO. SPAC Organizational Documentation (charter, bylaws) Sponsor Constituent Documents (LLC agreement, etc.) After the staff has signed off on the public filing, the sponsor can move quickly to have the registration statement declared effective, most often with limited amendments. For example, a former SPAC is not eligible to register offerings of securities pursuant to employee benefit plans on Form S-8 until at least 60 days after it has filed a Super 8-K. These White Rino shells are part of the Exacta Target line of ammunition. Board of Directors Declared Total Dividends of $0.66 per Share for First Quarter 2023. In a number of examples, the forward purchase commitment has been subject to approval by the forward purchaser or has been styled expressly as an option of the forward purchaser. fund exits an investment and distributes the proceeds in accordance with the SPAC fund's partnership or operating agreement. (go back), Posted by Ramey Layne and Brenda Lenahan, Vinson & Elkins LLP, on, The audited financial statements of the target business in the proxy statement or tender offer materials may be audited under the American Institute of Certified Public Accountants rules, but the, Harvard Law School Forum on Corporate Governance, on Special Purpose Acquisition Companies: An Introduction, Three Years of Audited Financial Statements, Quantitative and Qualitative Disclosures About Market Risk, Director and Executive Officer Biographical Information, Security Ownership of 5% Owners, Directors and Executive Officers, Description of the Registrants Securities. In a typical SPAC IPO, the public investors are sold units, each comprised of one share of common stock and a fraction [3] of a warrant to purchase a share of common stock in the future. This provides compensation to the independent directors for their service, as independent directors are typically not otherwise paid for their service. 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. Although SPACs can provide advantages over other deal structures, the SPAC IPO process and the de-SPAC transaction are highly regulated and complex transactions that require intensive planning and preparation. For more information on the tax treatment of SPAC sponsors, see BDOs article BDO Knows SPACs: Tax Treatment of SPAC Founders Shares. In the rare event that a SPAC shareholder vote is not required, the SPAC will be required under its charter documents to conduct a tender offer to redeem the public shares and to file tender offer materials containing substantially the same information as would be required in a proxy statement. In a de-SPAC transaction, price is determined early on through negotiation. The sponsor pays a minimal amount, typically $25,000, for founder shares, referred to as the promote. The absence of any promote in the Pershing The SPAC sponsors (or founders) are responsible for forming the SPAC entity, raising capital with investment groups, and taking the SPAC public. If the SPAC fails to complete a business combination within that period, the SPAC liquidates and the funds in the trust account are returned to the public shareholders.
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