Spacs can be good exit alternatives for portfolio companies of private equity and hedge-fund investors due to their unique structure and limitations, especially given the chilled IPO and credit markets. However, these unique structures and limitations also lead to issues for a Spac that is running out of time.
There are different ways to solve these issues, depending on risk tolerance, but they should be explored and negotiated before executing the merger agreement. By discussing them early and openly in the negotiation of the merger agreement, a portfolio company should be able to avoid any surprises and create a successful business combination with a Spac.
Becoming a viable route
With SEC approval of the listing rule changes on July 25 2008 for Nasdaq and on May 6 2008 for the NYSE allowing both to list special purpose acquisition companies (Spacs), and the listing of high-profile Spacs since late 2007, including Liberty...