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Understanding the role of a SPAC

by | Mar 20, 2023 | Mergers and Acquisitions

Private businesses may decide to go public to raise more money and expand their enterprise. Special purpose acquisition companies assist private companies in New York and elsewhere with going public and acquiring an existing company. SPACs must adhere to the law when engaging in the initial public offering (IPO) process.

SPACs and companies

The prime reason a SPAC exists is to acquire another company. The SPAC provides a way to raise money for the process, and the acquisition could also include a merger. During the IPO stage, the SPACs do not conduct routine business or name their targets. The SPAC must form first and then enter the IPO phase, which could take more than eight weeks.

The SPAC will launch a search for a target company capable of providing a solid return on investment. The SPAC’s managers could review many positives and drawbacks associated with various target companies to locate an appropriate investment.

Purchasing and merging

When the time comes for a merger to proceed, parties must consider several legal aspects. Negotiating a contract that adheres to the deal structure and other items is vital. All parties should engage in proper due diligence before negotiating and signing the contract.

A thorough contract review is vital before signing any documents. Otherwise, there could be legal consequences for one or more parties that sign a problematic contract. All parties must follow through on their duties after signing a contract, or else they might commit a breach. Breaching the contract could result in legal actions and costs, along with a potential public relations problem when news of legal troubles spread.

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