b'Mergers & Acquisitions | SPACsAs noted above, if the SPAC does not complete itsFirst, in some cases, combining with a SPAC may be initial business combination within a specified periodquicker than a traditional IPO. Of course, this of time (typically 18-24 months), it is required todepends on the amount of due diligence, the nature liquidate its trust and use the funds (includingof negotiations and the shareholder approval interest earned on the trust funds) to redeem theprocess. In the case of a de-SPACing involving an SPACs public shareholders. Importantly, the found- insurance company, a Form A, or change of control ers shares are not redeemed. This gives theapproval application, will likely be necessary whereas sponsor(s) a strong incentive to complete a businessin a traditional IPO it would not be. Because of the combination within the specified period of time. In3-6 month Form A process, going public through a the insurance M&A market, the need for regulatorybusiness combination with a SPAC would likely not approval to complete the transaction may in certainbe shorter than a traditional IPO process.circumstances complicate the SPACs ability to meetIn a traditional IPO, the issuer and its underwriters this deadline. A shareholder vote would be neededput out a proposed price range for the issuers to extend the deadline. stock. At the completion of the IPO marketing Once a target has been identified and a businessprocess, the underwriters will recommend a final combination has been signed, the business combi- price based on the orders they receives. Thus, until nation is, with few exceptions, put to a vote of thethe end of the marketing process, the issuers stock SPACs shareholders. In connection with the busi- price, and thus its market value, will not be known. ness combination, SPAC shareholders, regardless ofIf the IPO is not favorably received by investors, or how they voted on the business combination, haveif the marketing process happens to occur during a the right to have their shares redeemed at a per- particular period in the markets, the IPO could share price equal to the aggregate amount then onprice below the range. However, with a SPAC, the deposit in the trust account, including interestSPAC and the target agree on a price for the divided by the number of then outstanding publiccompany based on the SPACs $10.00 trading price. shares (i.e., not including the number of foundersThus, the target company knows ahead of time shares). Public shareholders may continue to holdwhat its market capitalization will be. Of course, their warrants even if they exercise their to have theironce the business combination is announced, the common stock redeemed. trading price of the SPAC may go up or down thus It is common for the SPAC to raise additional capitalchanging the agreed upon valuation. Depending through the private placement of common stock toon how large the movement is, it may be possible institutional investors, commonly referred to as ato reprice the business combination to provide private investment in public equity (PIPE). more value to the target shareholders but that depends on a number of factors.After completion of the business combination, theOne of the primary reasons to go public by combin-target operating company is the surviving publicing with a SPAC is that there are fewer restrictions on company. Thus, the entire de-SPACing process isbusiness combination discussions than IPO discus-essentially an IPO accomplished through a merger. sions. For example, the target can discuss a potential Why Go Public Through a SPAC? combination and valuation with multiple suitors and even hold a fulsome auction process before commit-There are a number of reasons why a private com- ting to the transaction. While in a traditional IPO pany might go public by combining with a SPACprocess the issuer and its underwriters can test the rather than utilizing a more traditional IPO route.waters, this process has significant limitations. Also 22 GLOBAL INSURANCE INDUSTRY|YEAR IN REVIEW 2020'