From The Wall Street Journal:

The decision to go public again was driven by building momentum at the restaurant chain, with the deal providing Burger King a chance to list itself without going through the time-consuming process of a traditional initial public offering, Burger King Chief Financial Officer Daniel Schwartz said Tuesday. “This route allows management to focus on running the business,” Mr. Schwartz said.

From the investor’s point of view:

• Typical SPAC terms give the investor a common share and a warrant position (both traded in the market). Investors are free to trade these securities like any other IPO.
• Most SPAC structures today hold at least 100% of the initial IPO price in escrow, invested in short term government securities. When a transaction is proposed, investors can redeem the share for the amount held in trust if not convinced of the merits of the acquisition.
• This provides upside opportunity if the acquisition is well received, but downside protection through the right to redeem the share.
• Both the share and the warrant are traded in the market so investors have the opportunity to exit the position at any time by selling.
• Upon announcement of a proposed acquisition, a proxy statement is filed with the SEC and investors can review the proposed acquisition to determine their interest in holding the position or exiting.
• Upon completion of the transaction, the escrow is distributed as proceeds and/or redemptions so if a shareholder decides to stay in the transaction the “SPAC” attributes are no longer applicable and the share may go up or down in value like any traded security.

From the acquisition target’s point of view:

• Merging with a SPAC is often a more efficient path to a public listing (as mentioned above in the quote from the management of Burger King).
• The SPAC structure is very flexible and allows for many different approaches to the financial transaction.
• The acquisition price is agreed to upfront and is not typically subject to the volatility of pricing in advance of a traditional IPO.

We view SPACs as an asset class that educated investors should consider adding to their portfolio. Over the last decade, Watermill Institutional Trading has served as managing underwriter on dozens of SPAC IPOs. If you would like additional information, click here to contact us and we will have a registered representative review the sector with you.

It is important to note that SPACs, while being structured to offer downside protection and upside potential, require high risk tolerance and investors must be able to afford to lose their entire investment.