Structural Trends and How SPACs Benefit Chinese Companies

By Bridge Point Capital | Oct 14th, 2019

In recent years, SPAC IPOs have shown a series of structural trends. At a high level, below are the key issues and trends we are following:

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    I. SPACs Overview:

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  • Moved to more specific, niche sectors, like energy, healthcare, and technology.

  • SPAC sponsor teams include repeat serial issuers (Jeff Quin, Jeff Sagansksy, Nathan Leight, Lorne Weil and Dan Hennessy) and high-quality first-time issuers (Wilbur Ross, TPG, Silver Run, Gores).

  • Most SPACs have listed on NASDAQ; some recently on NYSE.

  • Regardless of deal size, current SPACs use a $10.00 unit.

  • Including the interest, 100%+ capital raised for the SPAC IPOs is held in trust funds until SAPCs identify the optimal merging opportunities.

  • Usually have 21-24 months to find an acquisition, including extensions.

  

    II. SPACs Procedure:

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  • In the majority of traditional IPO transactions, companies incur an underwriter fee at about 6% of gross proceeds. On a SPAC, issuers only have to pay 2%-3% up-front fees, with remainder payable upon successful business combination which lowers the risk of SPAC IPOs.

  • Depending upon the size of the SPAC, sponsor’s “At-Risk” capital is approximately 5%, and its share is free of dilution.

  • Warrant strike out-of-the-money has increased greatly. Warrant : Stock ratio grows from 1 : 1 to 1.3 : 1 (or 1.5 : 1). Therefore, this increase significantly reduced overhang and improved the utilization rate of capital.

  • The strike price of warrants is approximately 115% - 120% of unit offering price. There is a concurrent increase to warrant call price of approximately $5 - $6 above the strike price, and the warrant package is at $.50 - $1.00 per warrant.

  • The vast majority of SPACs have warrant strikes out-of-the-money for $11.50 (so it’s $5.75 for ½ warrant).

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  •  III. Shareholder's Policy:

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  • In order to lessen the effect of “no voters,” modifications are made to shareholder vote features in SPACs:

 the redemption threshold has been increased

 shareholders can vote “Yes” and can still opt to get their money back.

  • Under certain circumstances, shareholders may exercise tender off options, which means they have the opportunity to redeem their shares of common stock for cash upon consummation of business combination.