The lifecycle of a SPAC

According to theSEC filing, Singapore-based tech giant Grab will list on the NASDAQ on this Thursday (December 2nd)through SPAC.Investors voted to approve the merger of Grab Holdings Inc. and Altimeter Growth Corp. on November 30.Its $40-billion listing will mark the world’s largest SPAC deal.

A special purpose acquisition company (SPAC) , also known as "blank check company", is a company with

Raising capital through an initial public offering(IPO)

Purpose of acquiring an existing company

A special purpose acquisitions company is essentially a shell company set up by investors with the sole purpose of raising money through an IPO to eventually acquire another company.

SPACs have been around for decades, but their popularity has soared in recent years. In 2020, 247 SPACs were created with $80 billion invested, and in just the first quarter of 2021, a record $96 billion1 was raised from 295 newly formed SPACs. By comparison, only two SPACs came to market in 2010.In 2020, SPACs accounted for over 50% of new publicly listed companies in the U.S.

There are three distinct phases in the lifecycle of a SPAC:

A SPAC’s IPO is typically based on an investment thesis focused on a sector and geography, such as the intent to acquire a technology company in North America, or a sponsor’sexperience and background.

Usually a SPAC is created, or sponsored, by a team of institutional investors, Wall Street professionals from the world of private equity or hedge funds, while even high-profile CEOs have jumped on the trend and formed their own SPACs.

SPAC IPOs are usually priced at $10 a share. Following the IPO, proceeds are placed into a trust account. In some cases, some of the interest earned from the trust can serve as the SPAC's working capital.

When a SPAC raises money, the people buying into the IPO do not know what the eventual acquisition target company will be. In creating a SPAC, the founders sometimes have at least one acquisition target in mind, but they don't identify that target to avoid extensive disclosures during the IPO process (This is why a SPAC is also often called "blank check company"). Institutional investors with track records of success can more easily convince people to invest in the unknown.

Once a target company is identified and a merger is announced, the SPAC’s public shareholders may alternatively vote against the transaction and elect to redeem their shares.

If the SPAC requires additional funds to complete a merger, the SPAC may issue debt or issue additional shares, such as a private investment in public equity (PIPE) deal.

De-SPACing: The SPAC typically has18-24 monthsto identify and complete a merger with a target company, sometimes referred to as de-SPACing.

If the SPACdoes notcomplete a merger within that time frame, the SPAC liquidates and the IPO proceeds are returned to the public shareholders.

Information Disclosure:"Once formed, the SPAC will typically need to solicit shareholder approval for a merger and will prepare and file a proxy statement (or a joint registration and proxy statement on Form S-4 if it intends to register new securities as part of the merger).

This document will contain various matters seeking shareholder approval, including a description of the proposed merger and governance matters.

It will also include a host of financial information of the target company, such as historical financial statements, management’s discussion and analysis (MD&A), and pro forma financial statements showing the effect of the merger."

Recently, shareholders of a SPAC company Altimeter Growth Corp voted in favour of the merger between Grab, the ride-hailing and delivery giant, and the listed shell company, paving the way for Grab to list in the US on Thursday (Dec 2).

In general cases, once shareholders approve the SPAC merger and all regulatory matters have been cleared, the merger will close and the target company becomes a public entity. After an acquisition, a SPAC is usually listed on one of the major stock exchanges.

A target company in a SPAC merger will need to prepare itself for being a public company normally within a few months, which is a shorter timeline compared to a traditional IPO for substantially the same preparation.Lock-ups for SPAC IPOs typically last 180 days to one year.

Information Disclosure:A Form 8-K, with information equivalent to what would be required in a Form 10 filing of the target company (commonly referred to as the Super 8-K), must be filed with the US Securities and Exchange Commission (SEC)within four business daysof closing.