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Every SPAC is an SPV, but not every SPV is a SPAC. (You’re welcome).
A “SPAC” is a “Special Purpose Acquisition Company.” Legally, it is a shell company that raises funds through an IPO, which allows the subsequent easy listing of an operating company later acquired thereby. Practically, it is an alternative way of taking firms public that bypasses the cumbersome, time-consuming and expensive IPO process.
As an example: let’s say that well-known promoter Barren Wuffett begins raising money through a listed SPAC to target an operating company for acquisition (a “SPAC attack”). Once the SPAC attack is successful, the SPAC merges with (or acquires) the target. The target becomes a listed company (instead of going through the IPO process itself) and investors become shareholders.
Unfortunately, many recent or pending SPAC deals are loss-making.
SPACs can be a massive rip-off if organized improperly and without the help of a knowledgeable investment attorney. Among other things, we recommend (1) ensuring SPAC shares awarded to the founders is not excessive; (2) tying management pay to meeting its forecasts, and (3) discounting firms that limit the voting rights of outside investors.
You may now ask, “So, what is an “SPV”? An SPV is a “Special Purpose Vehicle.” (It may also be referred to as an “SPE”, or “Special Purpose Entity.”) Essentially, it is a ring-fenced entity owned by investors that owns certain assets. SPV may be used to share (or externalize) risks or liability; assist with equity and debt raising; avoid or lower taxation; or comply with otherwise-onerous regulatory restrictions.
Our attorneys at The Wallenstein Law Group understand that investments and investment vehicles are highly technical and complicated. For assistance with these or any other legal acronyms, contact the Wallenstein Law Group today!