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What are words worth ?
What is a SPAC ? A SPAC , or special purpose acquisition company , is not a new type of financial vehicle and has been around for some time . Their rise in prominence of SPACs is being driven by what their proponents believe are advantages over traditional IPOs in that they can provide certainty over pricing and a greater degree of control over price terms . The process for a SPAC transaction can also be quicker than a traditional listing route .
What is a cash shell ? Initially a SPAC will be a cash shell and will publish a prospectus that will define which type of transaction and which sectors it is hoping to identify as a target . Typically , the SPAC will have a window of up to two years to deploy the cash raised , which is held in trust until a transaction takes place . Shareholders are able to redeem their initial investment – typically shares of $ 10 per unit – minus some costs if they do not wish to hold shares in the eventual target . The structure of the investment in a SPAC often takes the form of shares plus warrants , which gives the holder the right to acquire more shares at a set price . The SPAC shares trade once it has launched .
What is a PIPE ? Effectively , investors in the initial SPAC are buying into the expertise of a management team to identify targets . They will also raise the additional investment normally needed to fund the deal , called the private investment in public equity ( PIPE ). This new money will provide the leverage for the deal . Matt Davey at Tekkorp says the PIPE investment is crucial . “ Public investors want to see the PIPE alongside the deal because PIPE investors provide other investors with an independent validation of the valuation ,” he explains .
May 2021