Regulation A+ and Other Alternatives to a Traditional IPO

CHAPTER 11Special Purpose Acquisition Companies (SPACs)

As mentioned in previous chapters, there are two ways to create a shell. One method is to use the public entity remaining after an operating, publicly traded company is sold, liquidated, or goes out of business. The other method is to create a shell from scratch, as many players chose to do, especially in the second half of the 2000s.

The major reasons at the time for the proliferation of newly formed shells were the high cost of purchasing trading shells from former operating businesses, and the difficulty of finding a clean shell even if cost is not an issue. By creating a shell, a deal promoter structures it according to his needs and ensures that it is clean.

A significant development in the shell creation business since 2000 had been the proliferation of special purpose acquisition companies (SPACs) and Form 10 shells (previously discussed). Unfortunately, in March 2008 the pace of creating and taking public new SPACs came to a virtual halt for a variety of reasons, which we will discuss. In the last four to five years, however, as we will note, SPACs have made a strong return.

SPACs have been around since the 1990s. In the mid‐1990s about a dozen SPACs were formed. They stopped being popular later in the decade when the initial public offering market boomed. SPACs returned with a vengeance in 2003 when the initial public offering (IPO) market hit the doldrums and, even after recovering, remained inaccessible to smaller ...