Mechanics of How PE Sponsors Can Form, Capitalize and Publicly Offer a SPAC Vehicle to Acquire a Private Company (Part One of Two)

The increasing use of special purpose acquisition companies (SPACs) – also known as “blank check companies” – is a strong trend in 2020, notwithstanding the challenges of the current environment. As a vehicle designed to take private companies to the public market, SPACs may be used by fund managers launching funds to buy companies and take them public. In addition, PE sponsors can choose to exit their existing portfolio company investments by selling their stakes to SPACs in lieu of performing IPOs or other divestitures. Weil recently hosted a webinar to discuss important terms and features of SPACs, which was presented by partners Alexander D. Lynch, Heather L. Emmel and Jackie Cohen. This first article in a two-part series walks through the SPAC process, including the formation and capitalization of a SPAC by PE sponsors; common shares and warrants available in a public offering; evolving market terms for SPACs; and potential conflicts of which the SEC is wary. The second article will detail timeline and marketing considerations for SPAC offerings, as well as key issues with SPAC acquisitions (e.g., negotiating terms and economics with prospective target companies). For additional insights from Weil partners, see our two-part series: “Why and How Fund-Level Preferred Equity Can Be Used As Rescue Capital” (Jul. 14, 2020); and “Potential Risks and Future Trends of Adoption of Fund-Level Preferred Equity” (Jul. 21, 2020).

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