![]() ![]() SPACs have the advantage of bypassing the substantial time, resources, reporting and underwriting through the traditional IPO process. The delayed deadline could also create conflicts of interest if SPAC sponsors succumb to impatience and throw due diligence to the winds of stock market volatility and the historically weaker returns and in-the-red performance of common shares that occur after mergers. Even though the prospectus might identify a specific business or industry, the SPAC is not obligated to keep its word.Īlso, the two-year deadline for closing the deal means that investors must be patient. On the other hand, investors who buy into the SPAC’s IPO have no idea of the final target. In the end, investors can redeem their shares if they don’t approve of the acquisition. Rather than being underwritten by banks and investment firms, the target company is essentially mentored by experienced SPAC sponsors. So, the SPAC process is a cheaper, quicker, and easier way for a company to raise capital. That can mean an enormously lucrative return when the company can be worth millions. If the deal is successful, the sponsors can take over up to 20% of the company for an initial investment of only $25,000. SPAC sponsors have two years after the initial public offering to find a company, whereupon the SPAC is disbanded and SPAC sponsors cash out. Then the SPAC shareholders can opt to redeem their shares and take a profit or hold onto the investment in the form of shares. The SPAC shareholders agree to the takeover, most often structured as a reverse merger, meaning that the target company merges with the SPAC or its subsidiary. That begins a campaign where the SPAC sponsors do market research looking for a company that wants to go public via acquisition-the act of taking over or gaining at least 50% of the company’s stock. The investment money is placed into an interest-bearing trust account. ![]() The typical initial trading level is about $10 a share. ![]() They raise money from investors through prospectus marketing, emails, word-of-mouth, etc. High-profile investors-hedge funds, private equity and industry leaders-create a SPAC. They are ventures where money is looking for companies. SPACs aren’t even real, commercially active companies. In the insiders’ world of investments, SPAC transactions are essentially friendly buyouts of target companies. SPAC transactions are alternatives to raising capital via traditional stock market initial public offerings. SPAC stands for special purpose acquisition company. Because of SPAC capitalization and direct IPO transactions, and having sold $1.15 billion worth of its convertible debt, Draft Kings has offered some of those vast proceeds for fund acquisition. Those are two of the DraftKings app developers’ core business competencies. Tel Aviv-based Blue Ribbon has leveraged its jackpot technology into DraftKings internet casinos and sports betting. ![]()
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