Special Purpose Acquisition Company or SPAC

Special Purpose Acquisition Company or SPAC
The" blank check or pink slip companies" now also referred to as special purpose acquisition company (SPAC) is a company formed for the purpose of raising investment capital through an IPO or Initial Public Offering. This allows investors to contribute money towards a fund, which is then used to acquire one or more unspecified businesses to be identified after the IPO..

How to form a SPAC and fund
SPAC is formed by an experienced management team or a sponsor with nominal invested capital, say a 20% interest in the SPAC. The remaining 80% interest is held by public shareholders through "units" offered in an IPO of the SPAC's shares. Each unit consists of a share of common stock and a fraction of a warrant . Both shares generally have similar voting rights, with the exception that founder shares usually have sole right to elect SPAC directors. Warrant holders generally do not have voting rights.

The SPAC merger
Once formed, the SPAC will typically need to take shareholder approval for a merger. This document will contain various matters seeking shareholder approval, including a description of the proposed merger and other governance matters. It will also include the entire 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 such a merger. Once shareholders approvals are done the SPAC merger and all regulatory matters shall be cleared, the merger will close and the target company becomes a public entity. A Form 8-K, with information equivalent to what would be required in a Form 10 filing of the target company, must be filed with the US Securities and Exchange Commission (SEC) within four business days of closing.

SPAC Capital Structure
Units A SPAC floats an IPO to raise the required capital to complete an acquisition of a private company. The 100% of the money raised in the IPO is held in a trust account. In return for the capital, investors get to own units, with each unit comprising a share of common stock and a warrant to purchase more stock at a later date. The purchase price per unit of the securities is usually $10.00. After the IPO, the units become separable into shares of common stock and warrants, which can be traded in the public market. The purpose of the warrant is to provide investors with additional compensation for investing in the SPAC.

India and the SPAC Boom
While SPAC deals in India are still at a very nascent stage, the disusssions aaround SPAC in the Indian transactions space is rapidly growing. Albiet a few nikpriks of the Indian tax and regulatory considerations need to be suitably addressed before implementing SPAC structures in India.

Indian regulatory approvals for India based SPAC
As per the present tax regime, regulatory approvals may be required at critical junctures ie at the time of SPAC investment or exit, depending on the mode and amount of investment and the structures proposed to be adopted.

Indian resident an opportunity to invest
Indian resident individuals can invest in an overseas SPAC. But within prescribed annual limits as per FEMA which is currently, US$250k.