SPAC Presentation

7/29/2019 SPAC Presentation

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SPACA blessing or a curse for Chinese

companies

Chelsea XieYang Sun

YudianTang


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Overview

What is a SPAC?

Trading Mechanism of SPAC

SEC Filings of SPAC

Advantages and Disadvantages of SPAC

Valuation Process

Performance of Chinese Companies

Conclusions


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What is a SPAC

SPAC--Specified Purpose AcquisitionCompany

organized for the purpose of effecting amerger, capital stock exchange, assetacquisition or other similar businesscombination with an operating business in aspecified industry.

A corporation formed by private individuals

to facilitate investment through an initialpublic offering (IPO). The proceeds are used


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What is a SPAC

Similar to a Blank Shell Company

A new shell company is a company that

exists but does not actually do anybusiness or have any assets

Shell companies are often formed byindividuals and businesses to conduct

legitimate transactions, such as domesticand cross-border currency and assettransfers, or to facilitate corporatemergers and reorganizations.

Instead, SPAC creates a new Shell

Company of its own


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What is a SPAC

Issue common stocks or units to qualifiedinvestors

SPACs trade as units and/or as separatecommon shares and warrants

Nowadays, SPAC offerings are commonlysold in $810 units which consist of one

common share and one warrant.


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What is a SPAC

No operation

the Shell has never had business in the

past

The Shell does not have any assets, ordebts, only has cash

Its only purpose is to go public with the

intention of merging with or acquiring acompany with their funds


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What is a SPAC

Limited Life Charters

Must sign letter of intent for a merger or

acquisition within 12/18 months of the IPOwith transaction close within 24 months.

Incorporated with 24-month limited lifecharters: require SPAC to automatically

dissolve if unsuccessful


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Trading Mechanism

ShellCompany

TargetCompany

InvestmentBanks

Investors

StockExchange


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Trading Mechanism

The Unit

A $6.00 Unit consists of one share ofCommon Stock and two Warrants.

A $8.00 Unit consists of one share ofCommon Stock and one Warrant.

A$10.00 Unit consists of one share ofCommon Stock and one Warrant.

Each Warrant entitles the holder to

purchase one share of Common Stock ata rice of 5.00 6.00 or 8.00.


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SEC Filings ( Rule 419 )

Rule 419 (an SEC rule) requires that theblank check company deposit the

securities being offered and proceeds ofthe offering into an escrow or trustaccount pending the execution of anagreement for an acquisition or merger.

The rule provides procedures for therelease of the offering funds inconjunction with the post effectiveacquisition or merger

Notable:


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SPAC - Advantages

Comparison with IPO:

Lower capital requirement (less than

$5M)

Shorter period (1 year less than normalIPO)

Able to control the risk

Lower costs/fees (1/5 of normal IPO)

New entity could also engage in RM

bypassing the usually lengthy and


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SPAC - Advantages

Comparison with RM:

No debt and legal issues with Shell check

companies

Higher cash level

Raise more money than reverse mergers

at the time of IPO (Average $115M V.S.$5.24M through RM)

Risk factors are lower than standardreverse mergers


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SPAC - Disadvantages

Lower IPO price for Shell check company

The initial company could not directly get

listed on Nasdaq

Main investors are PE and hedge fund

Dilution due to management and sponsor

shares (20%)

Low visibility on future acquisition(s) atthe time of the SPAC public offering

Limited liquidity of their securities


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Why SPAC


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Comparison


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Valuation Process

The model we use


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Valuation Process


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Valuation Process


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Valuation Process


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Performance of Chinese

Companies


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Conclusions

1. More of arbitrage instead of growth

2. Companies have to balance between the

benefits and costs

3. Good performance in SPAC may be a badsign for companies

4. Lack of experience and risk managementskills

SPAC Presentation

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