Investors and sponsors with an industry focus are increasingly forming special purpose acquisition companies (SPACs) as an alternative way of raising funds, through an initial public offering, prior to buying an operating company. SPAC management teams typically target an industry or sector, but not a particular company, before IPO. Once a SPAC goes public it has a set timeframe — usually 18 to 24 months — to use its funds to acquire a target (de-SPAC), or else return the funds to its investors.
The SPAC structure represents a careful balance between investor protections and an effective acquisition tool — providing benefits to investors, sponsors, and sellers of target businesses. The video below explains how SPACs work.
Why SPACs Are Increasing in Popularity
SPACs represent an alternative to the traditional IPO, offering a source of financing and an efficient route to go public that may be a better fit for certain companies. SPAC IPO pricing is often simpler on the front end because the value of a SPAC’s shares is equal to the money in its trust. Credible sponsors with significant assets under management are increasingly executing larger SPAC IPOs and de-SPAC transactions, successfully acquiring significant operating businesses in the process. Price discovery takes place between the SPAC and target business during the de-SPAC transaction, providing an equally, if not more insightful pricing process than that of a traditional IPO.
Latham’s Seamless SPAC Capabilities
Latham is especially well-positioned to guide SPACs throughout their life cycle. Successful SPAC transactions require careful planning and execution, from formation, to IPO, the subsequent business combination, and then onto life as a public company. Our SPAC team leverages Latham’s elite capital markets, M&A private equity, public company representation, and tax capabilities to deliver seamlessly coordinated, full-service advice and representation to SPACs, their sponsors, underwriters, and M&A participants. We couple our SPAC advice with deep industry-specific knowledge and complementary practice support to provide unparalleled insight and commercially focused counsel.