The Changing FinTech Landscape

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26 SPOTLIGHT ON SPACS One of the most noteworthy developments in M&A transactions in 2020 and 2021 has been a significant increase in the number of private companies, including many FinTech companies, combining with special purpose acquisition companies, or SPACs, resulting in the formerly private company becoming a public company. In the four-year period from 2016 to the end of 2019, a total of 104 combinations with a SPAC were announced. 4 By comparison, in just the 15-month period from January 1, 2020 to March 31, 2021 a total of 197 combinations with a SPAC were announced. 5 A SPAC is a shell company that is formed for the purpose of completing a business combination transaction—commonly referred to as a "de-SPAC transaction"—with one or more unidentified target businesses within a specified period of time (typically 18 to 24 months). SPACs do not have any revenues or operations—their sole purpose is to raise capital to complete a de-SPAC transaction. SPACs are typically sponsored by an investor and management team with experience identifying, acquiring, and operating businesses in a public company setting. A SPAC will raise the capital necessary to fund a de-SPAC transaction through the proceeds from its IPO and, to the extent required, additional financing sources (often through private investments in public equity, or PIPE, transactions). A SPAC cannot identify targets for a de-SPAC transaction prior to the closing of its IPO. The amount that a SPAC raises in its IPO is typically one-third to one-fifth of the expected enterprise value of potential targets. Once a SPAC has identified a target for a de-SPAC transaction and has entered into definitive agreements with the target, the SPAC typically will need to obtain shareholder approval of the transaction or commence a tender offer process. As part of this approval or tender offer process, the SPAC must provide its public shareholders with the right to redeem their public shares in the SPAC in exchange for an amount of cash that is approximately the amount paid by the shareholders in the SPAC's IPO. If shareholder approval is obtained (or the tender offer process is successfully completed), and the other conditions to the transaction are satisfied, the de-SPAC transaction will be consummated and the SPAC and the target business will combine, resulting in a publicly traded operating company. SPAC BASICS

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