SPAC presentation - YouTube

Hello my name is Minh Ha Nguyen and the topic today is going to be about spac and is underlining

issues So what is spac spac is a blanket companies formed to raise capital from an initial public

offering an IPO and then go look to find another private operating business to merge with and

bring that company publicly traded There are several rules to apply to spacs however we

need to consider 2 rules first of all no one can know about the acquired companies before

spac IPO and the second one is acquired companies must be worth at least 80% of the raised capital

in the IPO recently we see a lot increasing movement in spacs formation from only one

in 2009 right now in 2021 in only four months we already see over 300 spacs formations so

let's see how spac work just several groups that involve in spacs process first of all

is the founders and sponsors they usually you know they are those that get together

and form a spac and they are usually current or former executives in variety of industries

they have experience they have expertise to be able to bring spac to work so there are

also underwriters underwriters are the one that provides structures for the spac security

offerings they provide advices or they serve as the market makers for the spac process

there are also investors this is retail investors and there are pipes which stand for private

investment in public equity including hedge fun wholesale investors so pipe is another

way to raise capital in spacs all right now let's go through the stages of spacs so first

of all the management team or sponsors fill the form S one with SEC to form a spac and

then they raise capital through an IPO by offering shares usually in the combination

with warrants or fracture of warrant offered to the public.

the capital raise in the IPO are going to be put in the interest bearing escrow account

or trust account to generate interest while the sponsors start to look for target companies

to merge with.

typically the sponsors have about 18 to 24 months to find a company.

if they fail to find an adequate company then the spac has to go through the liquidation

step which means the company is dissolved and the investors get their money back with

interest.

but if a company is identified and approved by the shareholder the acquisitions or the

deSpac step is going to take to be taken so spac and private company will comebine and

become a new publicly traded company.

the question is why some private companies want to go public via SPAC but not the traditional

IPO. to me it is because they want to bypass the requirements the hefty requirements of

the traditional IPO spac do have some advantages including first of all is time in spac they

might take only two or three months to finish the whole process in contrast with the traditional

IPO it may take from 6 to even a year to finish the process .also is about the cost less requirements

less cost to make it happen so this is the reduced cost due to the reduced due diligence

and also the advantage of for the retail investors the retail investors will be able to get in

very early and directly to the to the company without going through the intermediate like

traditional IPO what does mean is they might get a very good deal and if that's a good

company their return is going to be enormous another advantage for the target company is

the price certainty so in the merger document the target company will be able to have confident

in the valuation without waiting for the result of the IPO like in the traditional IPO so

however tradition also IPO got a lot of benefits because they demand a lot they give out extreme demand for the companies

that wish to go public but in spac because those companies trying to shortcut the process

so they also takes on so many risks the first one is the miss alignment of interest between

the sponsors and the long term investor are between the early investor and the later investors

so sponsors typically get about 20% of spacs proceed and they may profit even though the

acquisition proved to be unsuccessful also early investors usually get very favorable

terms for their investments that guarantee almost no risk so if something bad happen

is the regular investors left to hold bag and the bag here is including the reduction in

spac value and the cost of Spac dilution when we talk about the dilution in spacs

it might include sponsors' compensations the generous return for the original investors and even

the underwriting fees another risk that's SPAC shareholders should consider is about

the target company in traditional IPO companies use need to undergo the scrutiny from the

SEC the under writers the investors they have to prove themselves proved themselves to be

worthy to be invested in however those company in space might you know have things

unfavorable untold to the public investment so SPAC shareholders need to evaluate really

carefully the target company when it is announced and determine whether they want to stick with

it or requests a return for their investment and another issue with target company is the

supply and demand because the growing number of spac formation growing strong every day

what this mean is it's going to be harder and harder to find qualified private

companies too merge with so and keeping my is the sponsors will not get paid unless they

be able to find a company a target company so the sponsors might might just reduce their

expectations and try to seal a deal with acceptable company rather than a best company that they

had it might before and get their compensation they just do not act for the best interests

of the shareholders like they said we now go in to look at the SPAC performance to see

if the concerns about the risks are correct unfortunately based on this research out of

seven 72 SPAC IPOs we compared them with the S&P 500 along the SPAC lifecycles and

never a time that more than half of them outperformed the S&P 500 so shareholders watch out so another

movement in spacs is the involvement of celebrities by definition celebriti's are movie stars professional

sport athletics even politicians those that are famous we can say that but usually not in

the financial world so we see more and more celebrities get involved in SPAC an some

of them even reported that they get invitation or offers to be paid just to put their name in a spac's

paper without doing anything so there's there's going to have a lot of risks over here so

in response to the search spac interests the SEC is pushing more and more guidance

and regulations recently the SEC came out with a warning about celebrities SPACs saying

you should not in invest in a company solely because of a celebrity is over there it doesn't

mean anything it's got to be about the background of the sponsors or the background of the spac

an then not long after that SEC issue new guidance about accounting for SPAC

warrants and it immediately cool off the space market according to SEC SPAC warrants

should be classified as liabilities rather than equity instruments and what does it mean

it means not only specs companies will need to assert the possibility of restating their

financial information but also the guidance makes spac deals less attractive in the

futures so I do not know if SEC actions will bring more protection for SPAC investors

or change the SPAC investing environment but I think if the issue is about SPAC structures

and the structure is unchanged then more regulations more guidance will only be able

to slow down the activities but the risk the costs that shareholders are carrying they

going to be the same so based on those facts my answer is no thank you for listening