When SPAC Sponsors pursuing a SPAC, they must follow regulatory SPAC rules. Since SPAC Shares will be traded either on the NYSE or Nasdaq, the SPAC Shares should not be a penny stock issued by a Shell.
- Besides the SPAC Shares, Warrants also available for subscription during the interim stage while waiting for a target business to merge or take over. Warrants provide a guarantee for a subscription of additional SPAC Shares on a future date on the agreed price per share.
- Great flexibility. An investor can sell entire or partially the SPAC Shares he owned or drop out of the SPAC transaction and seek a refund (share redemption).
- Cash liquidity is flexible. The process may take six months for a SPAC ready to go public.
- SPAC management and transaction disclosure information is available to enable investors to evaluate the SPAC prospect and risk (Prospectus).
- SPAC shareholders have the right to vote on the initial business combination (IBC) opportunity identified.
- SPAC management team consists of qualified and experienced personnel. SPAC sponsors may comprise venture capital or investment bank of substantial investment, or an underwriter for the SPAC IPO. Collectively, they evaluate the IBC. This gives investors confidence in the SPAC they followed.
Investing in securities has a risk. However, despite the advantages a SPAC had, there is still a potential investment risk which is low:
- The level of risk varies depending at which stage an investor invests in a SPAC. Four risk levels: as a SPAC Sponsor; investing at the beginning of the IBC opportunity identified; investing during the IBC negotiation stage, and when the SPAC Shares traded (secondary market). Notably, SPAC transactions may take months to complete after the SPAC IPO or they may fall out or not pursue by the SPAC management.
- SPAC IPO proceeds are deposited in a trust account. The trust account is held by a third party. SPAC IPO proceeds mean proceeds after deducting relevant professional fees and issue expenses. When an investor requests a refund, he will receive his investment money on a pro-rata basis of the amount in the trust account. Likewise, when the trust account is liquidated or the SPAC liquidated.
- A SPAC may require two years to identify and complete a SPAC transaction. It may take a longer period when listing SPAC Shares on a stock exchange. There are listing rules to follow and compliance.
- IPO SPAC Shares are usually priced at a nominal value of US$10.00 per share. However, after the IPO, the value per SPAC Share differs due to the dilution of shares issued for the business combination and SPAC Sponsors for their fees. After the IPO, whether the SPAC Share price will increase or decrease depends on the success of the completion of the IBC opportunity identified.