Why a private SPAC could be better than a public SPAC for the small cap sector

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Off Exchange SPAC’s (Special Purpose Acquisition Company)

Investors typically buy into these ‘blank cheque’ vehicles for the contemplated uplift in the value of the shares post the Reverse Takeover (RTO) transaction, so it follows that there would seem little argument for selling ones shares before a transaction takes place.

Bearing in mind that the listing process incurs significant prospectus costs over several months etc plus the ongoing sponsorship brokers fees, it begs the question …why pay for another substantial acquisition document; issuing expenses, repeated lawyers and accountancy fees on the main deal.

It is in effect a duplication of outgoings, which again takes a long time and liquidity is poor in a ‘tight market’. There are arguably better commercial and practical benefits to launching smaller private SPACs, particularly for entrepreneurial new economy companies.

Private SPACs Do Not:

  • Need a minimum 25p.c. float.
  • Have broker and sponsors fees.
  • Have Stock Exchange listing fees.
  • Have suspension during transaction process.
  • Impose concert party constraints above 29pc.
  • Impose immediate mandatory director dealing disclosures.
  • Have looser lock in restrictions on founder shareholders.
  • Incur expensive audit fees until quoted.
  • Suffer wide spreads by market makers
  • Have 2-year restrictions on finding an acquisition
  • Have blackout ‘close period ‘on dealing restrictions by directors
  • Suffer widespread share sell off in significant market corrections.
  • Require expensive D&O insurance premiums

Private SPACs Do:

  • Have similar liquidity opportunities via a matched bargain.
  • Have capped founder option or warrant percentages of capital.
  • Have ability to switch target sectors and other key strategies
  • Have easy capital top ups with simple private placement subscriptions.
  • Trade near cash asset value in substantial market crashes.
  • Do get followers on social media and limited research.
  • Vet directors, check AML and KYC etc.

 

In many cases delisted public companies have been used for RTO’s so they are no different from a private unquoted company. On the JP Jenkins dealing platforms the annual admission fee starts at only £7,000. A cash ‘shell’ can be listed with only £100-200k cash, enough to bring a suitable acquisition to the table after DD (due diligence). Once a target acquisition has been found, a private placement by way of a share subscription letter can raise additional funds from new investors who like the target. This in effect makes them pre-IPO shareholders and they can benefit from any subsequent uplift in value of the publicly quoted shares when dealings begin after the merger, depending on lock up restrictions they may or may not be imposed.

JP Jenkins is a well-known trusted trading platform for private companies and their shareholders; past clients include National Carparks, Liverpool, Man City, Weetabix, Adnams Brewery and others. The first JP Jenkins private SPAC will be launched soon subject to further advice by director Malcolm Burne, Author of 2015 ‘Cash Shell Report. He has been the originator of over 30 ‘shells’ in four countries during a long career, the last being just 3 months ago when £1m cash shell Auctus Growth Plc acquired HeiQ anti-viral group in circa £120m RTO. The share price has since doubled.

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