spac presentation
TRANSCRIPT
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SPACA blessing or a curse for Chinese
companies
Chelsea XieYang Sun
YudianTang
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Overview
What is a SPAC?
Trading Mechanism of SPAC
SEC Filings of SPAC
Advantages and Disadvantages of SPAC
Valuation Process
Performance of Chinese Companies
Conclusions
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What is a SPAC
SPAC--Specified Purpose AcquisitionCompany
organized for the purpose of effecting amerger, capital stock exchange, assetacquisition or other similar businesscombination with an operating business in aspecified industry.
A corporation formed by private individuals
to facilitate investment through an initialpublic offering (IPO). The proceeds are used
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What is a SPAC
Similar to a Blank Shell Company
A new shell company is a company that
exists but does not actually do anybusiness or have any assets
Shell companies are often formed byindividuals and businesses to conduct
legitimate transactions, such as domesticand cross-border currency and assettransfers, or to facilitate corporatemergers and reorganizations.
Instead, SPAC creates a new Shell
Company of its own
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What is a SPAC
Issue common stocks or units to qualifiedinvestors
SPACs trade as units and/or as separatecommon shares and warrants
Nowadays, SPAC offerings are commonlysold in $810 units which consist of one
common share and one warrant.
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What is a SPAC
No operation
the Shell has never had business in the
past
The Shell does not have any assets, ordebts, only has cash
Its only purpose is to go public with the
intention of merging with or acquiring acompany with their funds
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What is a SPAC
Limited Life Charters
Must sign letter of intent for a merger or
acquisition within 12/18 months of the IPOwith transaction close within 24 months.
Incorporated with 24-month limited lifecharters: require SPAC to automatically
dissolve if unsuccessful
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Trading Mechanism
ShellCompany
TargetCompany
InvestmentBanks
Investors
StockExchange
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Trading Mechanism
The Unit
A $6.00 Unit consists of one share ofCommon Stock and two Warrants.
A $8.00 Unit consists of one share ofCommon Stock and one Warrant.
A$10.00 Unit consists of one share ofCommon Stock and one Warrant.
Each Warrant entitles the holder to
purchase one share of Common Stock ata rice of 5.00 6.00 or 8.00.
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SEC Filings ( Rule 419 )
Rule 419 (an SEC rule) requires that theblank check company deposit the
securities being offered and proceeds ofthe offering into an escrow or trustaccount pending the execution of anagreement for an acquisition or merger.
The rule provides procedures for therelease of the offering funds inconjunction with the post effectiveacquisition or merger
Notable:
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SPAC - Advantages
Comparison with IPO:
Lower capital requirement (less than
$5M)
Shorter period (1 year less than normalIPO)
Able to control the risk
Lower costs/fees (1/5 of normal IPO)
New entity could also engage in RM
bypassing the usually lengthy and
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SPAC - Advantages
Comparison with RM:
No debt and legal issues with Shell check
companies
Higher cash level
Raise more money than reverse mergers
at the time of IPO (Average $115M V.S.$5.24M through RM)
Risk factors are lower than standardreverse mergers
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SPAC - Disadvantages
Lower IPO price for Shell check company
The initial company could not directly get
listed on Nasdaq
Main investors are PE and hedge fund
Dilution due to management and sponsor
shares (20%)
Low visibility on future acquisition(s) atthe time of the SPAC public offering
Limited liquidity of their securities
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Why SPAC
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Comparison
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Valuation Process
The model we use
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Valuation Process
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Valuation Process
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Valuation Process
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Performance of Chinese
Companies
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Conclusions
1. More of arbitrage instead of growth
2. Companies have to balance between the
benefits and costs
3. Good performance in SPAC may be a badsign for companies
4. Lack of experience and risk managementskills