ARTICLE
11 March 2021

SPACs – What's The Hype?

H
Hassans

Contributor

Full service law firm established in 1939 with 46 partners, 50 other lawyers and 250 staff in total across two offices in Gibraltar and Sotogrande, Spain. Hassans are trusted advisers to clients both locally and overseas, who seek legal guidance in a fast-moving, multi-jurisdictional world. We aim to solve our clients problems with specialist tax advice, litigation, funds, FinTech, corporate and commercial, private client, financial services and trust solutions. Many of our assignments are cross-border and we have considerable knowledge of other key jurisdictions.

An acronym for "special purpose acquisition company", SPACs seem to be the new investment craze among music artists and sports figures.
United Arab Emirates Finance and Banking

An acronym for "special purpose acquisition company", SPACs seem to be the new investment craze among music artists and sports figures. They've been around since the 1990s but have gained traction during the pandemic.

A SPAC is a shell company that lists on a stock exchange, with the aim of buying a private business and taking it public. Everyday investors invest in SPACs in the hope that the SPAC finds a successful merger candidate and makes them a high return.

So why are celebrities associating themselves with these investment vehicles? Celebrities are brought in as promoters to attract investors (aka "strategic advisers"). In return, celebrities receive a stake in the company. If the company does well, this could mean a multimillion-dollar return.

In essence, SPACs are another way for celebrities to monetise their reputations whilst creating a new investment opportunity for everyday investors. Some think this is too "gimmicky", others view this as another money making opportunity. 

Hypothetically, let's say a SPAC prices at $10 a share, and raises $500 million in the public markets. If a celebrity adviser had negotiated 1 percent of that deal, they are rewarded with a stake in the company that is worth $5 million. But now let's say the same SPAC also finds a successful merger candidate, brings in other investors and a deal is done at $10 billion. The celebrity's 1 percent stake has netted them (on paper) a $100 million payday.

1045746a.jpg  https://www.nytimes.com/2021/02/27/style/SPACS-celebrity-craze.html

1045746b.jpg

www.gibraltarlaw.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More