Partner, National Corporate Tax and Mergers & Acquisitions Technical Practice Leader, Managing Director, National Corporate Tax and Mergers & Acquisitions, Business Restructuring & Turnaround Services, Total Tax Transparency & ESG Tax Strategy, Financial Institutions & Specialty Finance, Important Tax Issues When Navigating a SPAC Transaction, BDO Knows SPACs: Tax Treatment of SPAC Founders Shares, Special Purpose Acquisition Companies Resources page, Do Not Sell My Personal Information as to BDO Investigative Due Diligence, Strategic partners and management expertise; and. In a remarkable departure from the 20% promote model, the sponsor (Pershing Square TH Sponsor, LLC) of a recent SPAC (Pershing Square Tontine Holdings, Ltd.) has not taken any founder shares. In addition, there are a number of tax challenges and complexities for financial statement and tax reporting purposes that should be considered up front. This primer provides you with an introduction to SPACs. Try Now! Ramey Layne and Brenda Lenahanare partners at Vinson & Elkins LLP. The sponsors are generally granted an initial, separate class of "founders shares" for a nominal cost, which normally convert to public shares on the completion of the de-SPAC transaction. Northern Star III and Northern Star IV for the second time in three days announced further non-redemption agreements to shore up their finances ahead of extension votes.In the latest agreements, identical to both SPACs, participating investors will hold onto 800,000 shares through the extension vote. No software installation. If the SPAC had a specific target under consideration at the time of the IPO, detailed information regarding the target IPO registration statement, potentially including the targets would be required to be included in the financial statements, thus delaying the IPO and rendering it similar in form and substance to a traditional IPO. The public warrants compensate the IPO investors for investing in a blind pool. Among other things, it explains what a SPAC is, lays out the economic terms of the equity offered in a SPAC IPO, introduces the players that inhabit the SPAC world and describes the benefits of going public in combination with a SPAC instead of through a traditional IPO. Recently, the most common structure has been that the units sold in the IPO would include a half warrant, although one-third of a warrant is more common in larger IPOs. Recognizing the potential in SPACs, private equity firms and professionals have been assuming the role of SPAC sponsors in recent years. If no De-SPAC transaction occurs, the deferred 3.5% discount is never paid to the underwriters and is used with the rest of the trust account balance to redeem the public shares. The Sponsors must invest a portion of capital to cover the expenses of the SPAC, as the IPO proceeds are placed entirely in trust until the point of Business Combination. Arabian Entertainment Company, Ltd Terminates Business Combination SPACs typically file as emerging growth companies, which allows for confidential submission and review of the IPO registration statement, reduces financial statement audit and disclosure requirements and offers the ability to test the waters with certain qualified investors. The process can take three to five months from the date the business combination agreement is signed to complete, but in most cases is still shorter than the corresponding review of an IPO registration statement. This will require the preparation, SEC review and dissemination to the SPAC shareholders of a proxy statement. The company's File Number is listed as 6067589 . The office was designed and built specially for Google, . In return, the investors who are party to the agreement will receive 1 million of the SPAC's sponsor shares. (go back), 10SPACs are similar to blank check companies, which the SEC describes as a development stage company that has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person[. This SPONSOR FORFEITURE AGREEMENT (this "Agreement") is made and entered into as of August 15, 2022, by and among Founder SPAC, a Cayman Islands exempted company ("Founder"), Founder SPAC Sponsor LLC, a Delaware limited liability company ("Sponsor"), and Rubicon Technologies, LLC, a . The 2023 BDO CFO Outlook Survey offers critical insights to support strategic decision-making and help your company thrive. If there is unsolicited interest from potential targets, the SPAC and its officers and directors should refuse to engage and should respond that they will not consider the potential target until after the IPO is completed. After the sponsors disgorged the profitspurportedly in response to plaintiffs' demand lettersplaintiffs . Ex-10.6 In a traditional IPO, the underwriters typically receive a discount of 5%-7% of the gross IPO proceeds, which they withhold from the proceeds that are delivered at closing. Joint Filing Agreement February 14th, 2023 SHUAA SPAC Sponsor I LLC Blank checks. . After an acquisition, a SPAC is usually listed on one of the major stock exchanges. It's time to organize your fishing gear in an orderly fashion that will maximize storage and improve access. A SPAC Primer | Kramer Levin According to reports in the financial press, the current SPAC market could not be more active. These latter requirements include, among others, that (i) within 36 months of the effective date of its IPO, the SPAC must complete one or more business combinations having an aggregate fair market of at least 80% of the value of the SPACs trust account, (ii) if the SPAC holds a shareholder vote on the business combination, the business combination must be approved by a majority of votes cast by public shareholders, with the NYSE excluding votes of shareholders who are officers, directors or hold more than 10% of the SPACs outstanding shares, and Nasdaq requiring approval by a majority of the SPACs independent directors, and (iii) holders of the public shares must have the right to redeem their public shares for a pro rata share of the aggregate amount held in the SPACs trust account if the business combination is consummated, regardless of whether such shareholders previously voted to approve the business combination. However, within 52 days after the IPO, the units are severed, and the class A shares, often referred to as the public shares, and the warrants, often referred to as the public warrants, may be traded separately. The group of people who form and provide the risk capital for a SPAC are referred to as "Sponsors". Some sponsors compensate the independent directors of the SPAC through the sale of founder shares, at cost. In 2019, SPAC IPOs raised $13.6 billion. After announcing a letter of intent last week for a potential business combination, BurTech Acquisition today in an 8-K disclosed it has secured non-redemption agreements for 4 million of its shares. PDF What SPAC sponsors directors and officers can do to mitigate their Special Purpose Acquisition Company Database | SPAC Research Following shareholder approval, the SPAC and the target will complete the business combination, and both the target equity holders and the SPAC investors will become shareholders in the surviving company. However, the SEC staff does focus on the structure of the sponsor and has increasingly commented on potential conflicts of interest. SPAC Industry: Looking Ahead. The SPAC enters into a registration rights agreement with the sponsor and any other holders of founder shares and founder warrants (typically the SPACs independent directors), giving the sponsor and such other holders broad registration rights for the founder shares, founder warrants and other equity the sponsor and such other holders own in the SPAC. SPAC SPONSOR, LLC in Wilmington, DE | Company Info & Reviews View image. Unlike an investment in the IPO of a typical operating company in which the IPO stock price may rise or fall after the IPO, an investment in a SPAC IPO benefits from downside protection through the closing of the business combination. Many SPAC sponsors are serial SPAC sponsors, and their track record will include the success of their prior business combinations. As a practical matter, SPACs typically target business combination targets that are at least two to three times the size of the SPAC in order to mitigate the dilutive impact of the 20% founder shares. As described above, the purpose of the at-risk capital is to provide additional funding for the trust account and to pay IPO expenses and the operating capital needs of the SPAC. In a traditional IPO, the issuance price is determined at the time of the IPO after a lengthy SEC review process and roadshow, and is subject to full market risk during this process. Exhibit 10.16 . In most cases, a vote of the shareholders of the SPAC will be solicited to approve the business combination transaction with the target. To the extent that any of the SPACs contacts and documents do not terminate at the De-SPAC transaction by their terms, they are often amended in connection with the De-SPAC transaction. If the SPAC had a target in mind, the SEC would require disclosure of the name of the target and information (financial and otherwise) about the target. BDO professionals are dedicated to helping both sponsors and target companies navigate the complexities of SPAC transactions and can deliver expertise and support in any step of the process. The sponsor will typically purchase founder shares prior to the SPAC IPO filing. The team then raises seed capital for a SPAC sponsor from various sources, including private equity or venture capital-backed funds. Delaware Court Holds that SPAC Sponsor's "Founder Shares" Created a Both the sponsor and the public IPO investors receive warrants (although usually disproportionately to common shares), so the sponsor and the public IPO investors are aligned in terms of warrant structure and terms. These White Rino shells are part of the Exacta Target line of ammunition. SPAC overview and lifecycle - PwC The SPAC creates a transitory merger subsidiary that merges with and into the target, with the target surviving as a subsidiary of the public SPAC. . All rights reserved. Fiocchi Ozark MissouriFiocchi Of America's full import history It is important to note that if the target is an S corporation, its S status will terminate in the de-SPAC transaction since a SPAC (which is taxed as a C corporation) is not an eligible S corporation shareholder. A traditional de-SPAC transaction is structured as a reverse triangular merger for federal income tax purposes. On June 21, 2002, upon completion of claimant's orientation, he signed and dated an agreement entitled "MAVERICK TRANSPORTATION, INC. Maverick Transportation Orientation. The holders of the founder shares will agree, to the extent the green shoe is not exercised in full, to forfeit a number of shares so that their number of founder shares continues to equal 25% of the number of public shares actually sold to the public. There are no historical financial results to be disclosed or assets to be described, and business risk factors are minimal. The remaining ~80% interest is held by public shareholders through "units" offered in an IPO of the SPAC's shares. In a typical SPAC IPO, the public investors are sold units, each comprised of one share of common stock and a fraction [3] of a warrant to purchase a share of common stock in the future. Once the SPAC is public, the SPAC must identify potential acquisition targets, undertake due diligence, and complete the acquisition (known as the de-SPAC transaction) on terms that will maximize the sponsors return on investment. After the de-SPAC, the capital structure from the perspective of the target equity holders will oftentimes be similar to what it would have been had the target conducted an IPO. The balance of the discount is deposited in the SPACs trust account and is deferred and payable to the underwriters at the closing of the business combination. Blank check companies are subject to Rule 419 of the Securities Act. SPACs are founded by "sponsors," people or entities set up by people, hedge funds, or private equity groups that pick or serve on the SPAC's board of directors and bring a SPAC public through an IPO to raise money. Repairable, Salvage and Wrecked H&H Trailer Auctions. Directors of the SPAC are selected by the sponsor at IPO, and thereafter additional directors, if necessary, are appointed by the SPAC board. In a traditional IPO for an operating company, the underwriters typically receive a discount of around 6% to 7% of the gross proceeds, which is paid at the closing of the IPO. Mallard Point BulldogsMallard Pointe offers golfers a total practice Rice Acquisition Corp. to Combine Aria Energy and Archaea Energy into Grunt Style CompetitorsYeoman supports both major build systems - Grunt Generally, a SPAC is formed by an experienced management team or a sponsor with nominal invested capital, typically translating into a ~20% interest in the SPAC (commonly known as founder shares). From the decision to proceed with a SPAC IPO, the entire IPO process can be completed in as little as eight weeks. SPACs go through the typical IPO process, although the sponsors. The sponsor and the SPACs officers and directors will waive redemption rights with respect to their founder shares (and any public shares they may purchase) in connection with the De-SPAC transaction or a charter amendment to permit an extended period to consummate the De-SPAC transaction, effectively agreeing to stay invested in the SPAC through the closing of the De-SPAC transaction or until liquidation. The SPAC Explosion: Beware the Litigation and Enforcement Risk Formed by individuals with experience and reputations to allow them to identify and acquire one or more target businesses that will ultimately be successful public company/s. A sponsor creates a SPAC with a goal of $250 million in capital, investing roughly $6 million to $8 million to cover administrative costs that include underwriting, attorney, and due diligence. The proxy statement or registration statement will ordinarily be drafted while negotiations over the business combination transaction agreement are being conducted between the SPAC and the target. Complete a blank sample electronically to save yourself time and money. Although SPAC-related litigation has been relatively infrequent to date, that is likely to change given 2020's explosion in SPAC IPOs. ClearThink Capital's experience and expertise in SPACs spans three . Most SPACs are formed as Delaware corporations, but several have been formed in foreign jurisdictions (most frequently the Cayman Islands, but occasionally the British Virgin Islands or the Marshall Islands). SPAC Services | Deloitte US The balance of the proceeds from the private placement is retained by the SPAC to pay expenses, including expenses incurred to identify a suitable target for the business combination transaction. (The common percentage is 20%, while SPACs set up by Shanda Consult provide the sponsors with 25% founder shares.) SPAC charters provide for the establishment of the public shares and founder shares, including the anti-dilution adjustment to the conversion ratio for the founder shares. Warrants received by sponsors that have employment arrangements with the SPAC may be treated as compensatory warrants issued for services. In a number of recent SPAC IPOs, affiliates of the sponsor or institutional investors have entered into a forward purchase agreement with the SPAC, committing to purchase equity (stock or units) in connection with the De-SPAC transaction to the extent the additional funds are necessary to complete the transaction. Board of Directors Declared Total Dividends of $0.66 per Share for First Quarter 2023. The SPAC sponsors (or founders) are responsible for forming the SPAC entity, raising capital with investment groups, and taking the SPAC public. SPACs: Frequently Asked Questions | Perkins Coie A SPAC is a "blank check company" that raises capital through an IPO from investors in order to finance a future merger with a target company that has yet to be identified. 2. A common question is whether the sponsor should be a portfolio company of one or more existing funds or a subsidiary of the investment manager. Often, existing investors in the SPAC will invest in the PIPE transaction, demonstrating their support for the de-SPAC business combination. Partners that materially participate in the business can avoid the net investment income tax on the exchange of their partnership interest for the publicly traded shares. The sponsors may also receive warrants to purchase additional SPAC shares. If the target holders cash out a portion of their equity in the de-SPAC transaction, this would be the equivalent of a secondary offering in conjunction with an IPO. The sponsor and the SPAC enter into a securities purchase agreement providing for the issuance to the sponsor of the founder shares for $25,000. Investment warrants are not taxable when issued or exercised but result in taxable capital gain for the sponsor when the underlying shares are sold (a sale will result in long-term capital gain for the sponsor if the underlying stock is held for more than a year). PDF SPAC Lifecycle and Considerations for Private Companies - Troutman 1. However, SPACs are not blank check companies within the scope of Rule 419 because SPACs have charter restrictions prohibiting them from being penny stock issuers (the term penny stock generally refers to a security issued by a very small company that trades at less than $5 per share). They do, however, disclose the industry or geographic focus of the target business(es) they will pursue and the experience of their management in the relevant industry. The choice is up to you. Private equity managers contemplating sponsoring a SPAC face unique considerations, including where the sponsor should reside in the fund structure and whether the fund documents permit the formation of a SPAC. Creators: Kader Aoun, Xavier Matthieu, ric Judor. The major differences between SPAC and blank check companies/penny stock issuers are that SPAC equity may trade on an exchange prior to the SPACs business combination, brokers are not subject to heightened requirements on trades in SPAC securities, SPACs have a longer time period to complete their business combinations and SPACs are not prohibited under SEC rules from using interest earned on the trust account prior to the business combination.
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