SPAC listings: An opportunity for Singapore, but risks lurk for investors

THE year 2020 has been dubbed "The Year of the SPACs'' or "blank cheque companies''. Initial public offers of SPACs - ie special purpose acquisition vehicles - surged last year in terms of number and IPO proceeds in the United States.

If the momentum continues as it has so far, the SPAC frenzy is set to get more intense this year. Just two months into 2021, there are already 168 SPAC IPOs, about two-thirds of the 248 total last year based on SPAC Analytics data. In terms of proceeds, the IPOs raised nearly US$52 billion year-to-date, about 60 per cent of the total US$83.3 billion in SPAC proceeds last year.

First off, a SPAC is an investment vehicle set up to acquire an operating business that will hopefully prove rewarding for investors. By subscribing to a SPAC, investors get shares with an accompanying warrant. They effectively hand over a blank cheque as they have no idea what business will eventually be acquired. Until an acquisition is made, proceeds are held in trust and invested in Treasury notes. SPAC sponsors typically have 24 months to find and complete an acquisition. They typically take a 20 per cent share of the merger for a nominal fee. If no acquisition is made, the SPAC is liquidated and the funds returned to investors. If a target company is found, a merger has to be approved by shareholders. On completion, shareholders may choose to retain their shares, redeem them or sell them in the market.