Author: sun Jinju, Assistant to the President of Open Source Securities and Director of the Institute.

1.the number of SPAC IPO and the amount of capital raised in US stocks have exceeded that of the traditional IPO,. All kinds of capital celebrities have joined the game one after another. 
In recent years, the SPAC of the US stock market has shown exponential growth. The number of SPAC IPO and the scale of fund-raising in the first quarter of 2021 are far higher than the traditional IPO. In 2020, US stock SPAC ("Special Purpose Acquisition Company" for short, "special purpose acquisition company") IPO successfully issued 248, an increase of 320.0% over the same period last year, accounting for 55.1% of all IPO offerings, surpassing traditional IPO for the first time. In 2020, SPAC IPO raised a total of $83 billion, accounting for 46.47% of the total IPO size of US stocks. Since 2021, the popularity of SPAC has continued to rise, with the number of, SPAC IPO reaching 308 in the first quarter alone, surpassing the number of SPAC IPO in 2020, while the number of traditional IPO in the same period is only 98. , SPAC IPO raised $99.6 billion in the first quarter of 2021, while traditional IPO raised only $55.565 billion in the same period. 

SPAC boom quickly "out of the circle", capital predators, sports stars, well-known singers have entered the Bureau to establish SPAC. In recent years, Bain Capital, Blackstone, KKR and other top investment institutions in the world have set up SPAC, to find high-quality targets in science and technology, consumption, energy and other industries. In addition to professional investors, some famous entrepreneurs such as CEO, former legendary center of NBA, black rap star JAY-Z, tennis star Serena Williams and other sports and entertainment stars have also joined the SPAC. At the same time, China's venture capital circle is not willing to lag behind. Citic Capital has set up a SPAC under the code "CCAC" to acquire Chinese energy efficiency and technology companies. Li Ka-shing's son, Richard Li, and PayPal co-founder Peter Thiel have jointly invested in two SPAC companies, Bridgetown Holdings and Bridgetown 2 Holdings, to find high-quality targets for the new economic sector in Southeast Asian markets. Fu Weixiu, founder of the well-known PE Cambridge Capital in the field of medicine and health in China, launched SPAC, which focuses on the field of medicine and health. Wang Shi, founder of Vanke Group, also said that he plans to set up SPAC to find investment opportunities for enterprises in areas such as big health, sports technology and so on. 

2.the resource cash tool of SPAC: celebrities and the blind box game of ordinary investors. 
SPAC is essentially a cash shell company. The sole purpose of its establishment is to use the funds raised by IPO to acquire high-quality targets in the primary market, so as to achieve the rapid listing of private enterprises and get rich returns from them. Based on data from 125 cases in which mergers have been completed since 2019, the average time it takes for SPAC to complete a merger is only 18 months. Specifically, the whole life process of SPAC is mainly divided into the following stages: establishing SPAC, SPAC IPO, finding and determining the target company, raising additional funds (unnecessary), shareholders voting to merge the target company, and completing the merger. Among them, the process from finding the target merger company to completing the merger is also called De-SPAC. The main tasks of each phase are as follows: 
(1) the establishment of SPAC and IPO. Founders can set up a SPAC, for as little as $25000 because SPAC is a new cash-only shell company that does not need to disclose historical financial statements or assets and has few potential risks to disclose, so IPO reviews are faster. Normally, the IPO of SPAC shell company can be completed within 3 to 6 months. As of May 2021, the IPO fund-raising scale of the SPAC that is ready to go public and has been successfully issued is concentrated in the range of US $100 million to US $500 million, with an average fundraising size of US $336 million. 

(2) find the target company. After IPO, SPAC began to look for merger targets, generally focusing on emerging industries such as information technology, health care, and optional consumption. SPAC managers usually need to identify and complete the acquisition target company within 18 to 24 months, otherwise SPAC will be liquidated. 

(3) determine the target company. The identification of the target company is the beginning of the De-SPAC process, which is also the most important and uncertain stage in the SPAC life cycle. During this period, the founder of SPAC and the owner of the target company negotiated to determine the valuation level and other transaction conditions of the target company. 

(4) shareholders vote. Normally, most SPAC mergers and acquisitions are approved by the general meeting of shareholders. If the merger fails due to a lack of shareholder support, SPAC can look for another acquisition target within the specified time frame. If the SPAC acquisition is not successful within the specified time, it can only be liquidated. 

(5) merge with the target company. If the shareholders vote, SPAC will merge with the target company by issuing shares to purchase assets, and SPAC will change its name and transaction code to a new name and transaction code that can represent the acquired company, thus completing the De-SPAC process.

The essence of SPAC is the realization of the founder's resources, so the setting of the ownership structure of SPAC naturally gives the founder the investment leverage to obtain a higher proportion of equity at a lower cost. If we say that the traditional IPO is the financing of unlisted companies in the secondary market, SPAC is in the opposite direction, and the secondary market funds take the initiative to find the target of the primary market. In this process, the founder of SAPC plays a vital role. The founders of SPAC usually have extensive experience in mergers and acquisitions and private equity, or are industry experts themselves. For the recent active entry of sports, entertainment and other stars, its main advantage as the founder of SPAC is to use its appeal to the public to obtain stronger financing ability. In a word, the essence of SPAC is that the founders realize the rapid listing of high-quality companies through the realization of their professional investment skills, network resources, public appeal and so on. As a result, SPAC founders have the right to acquire SPAC's Class B common shares (typically 20 per cent of the total post-IPO share) for no more than 2 cents a share prior to IPO, also known as founder incentives and are the main source of founders' huge profits. Only Class B common shares are entitled to appoint or remove directors of SPAC prior to the completion of the merger and acquisition of SPAC, and can be converted into Class A common shares at 1:1 after the issuance of SPAC. On the other hand, Class A common shares are issued to public investors in the IPO link, and the initial price is generally US $10 per share. Shareholders with Class A common shares have the right to vote at the general meeting and can vote on matters such as merging the target company. In addition, SPAC usually issues warrants along with common shares, with an initial price of $1.50 and an exercise price of about $12 per warrant. 

The target of SPAC's acquisition is highly uncertain. Public investors participate in blind-box games with high potential returns, and the success rate of the game depends on the founder of SPAC. Although SPAC will specify the industry or area of the target company it intends to acquire in the IPO prospectus, it must not target a specific target company before going public. Therefore, for public investors, SPAC is equivalent to a blind box. The main source of expected earnings for public investors is the rise in the share price of SPAC after the completion of the merger of the target company. On the other hand, the rise and fall of the stock price depends on the quality of the subject matter. For public investors, the way to improve the success rate of blind box games is to choose the SPAC, set up by reliable founders, which explains why the founders of SPAC are mostly professional investors, business leaders with high-quality corporate resources, or stars with their own traffic. According to SPAC Track data, the stock price has risen significantly since 2019 after the successful merger of SPAC, with an average return of 103% in 2020 and a successful merger of 2021Q1. The average rate of return of SPAC has reached 37.4%, and the high rate of return is also an important driving force to attract ordinary investors to participate in SPAC.

3.loose liquidity and poor valuation of the primary and secondary markets promote the exponential growth of SPAC, and multi-local capital markets quickly follow the scramble for high-quality assets. 
As early as 1993-1994, SPAC was invented as a tool for reverse purchase of primary market companies in the US stock market, and ushered in a peak at the beginning of the 21st century. In 2007, the number of IPO of SPAC in the US capital market reached 66, accounting for 31% of the total IPO, raising a total of US $12.1 billion. But the outbreak of the financial crisis in 2008 led to a rapid cooling of SPAC. The significant increase in SPAC, which began in 2017, is the result of multi-factor resonance: 
(1) in order to hedge against the impact of COVID-19 's epidemic on the economy, major countries in the world adopted a rare loose monetary policy in 2020. By the end of 2020, the (Dry Powder) of idle funds in the private equity market reached 2.6 trillion US dollars, a record high. These funds urgently need to find high-quality investment targets. As a kind of financial innovation product which integrates the characteristics and purpose of financial products such as direct listing, merger, reverse takeover and private placement, SPAC provides an "export" for idle funds. From the data point of view, the rapid growth of the number of SPAC IPO since 2017 is highly consistent with the expansion of idle funds in the market. (2) the valuation of the secondary market is at an all-time high, and the valuation difference between the primary and secondary market is obvious, which makes the assets of the primary market more attractive. At present, the overall PE of the Shop P 500 is 32.49 times, which is in the historical quantile of 92.53%. In 2020, the multiple of enterprise value of Stemp 500 is 16.8X, reaching an all-time high. While the valuation of the secondary market is high, the target of the primary market is more attractive. U.S. IPO INDEX indicators show that since May 2020, the share prices of newly listed companies have significantly outperformed indices such as the S & P 500 and Russell 2000, and the U.S. IPO INDEX has risen by 107.3% in January 2021. The higher valuation difference in the primary and secondary market means that the target company has a better expected rate of return after listing through SPAC, which is also an important factor to attract ordinary investors to participate in SPAC. (3) the loose listing conditions of SPAC can help enterprises that are difficult to meet the traditional IPO threshold to achieve listing. From the current IPO listing standards of US stocks, some enterprises with high growth expectations but difficult to cash in the short term are difficult to list through the traditional IPO. If these companies are listed through a SPAC merger, they only need to submit a form 8Muk to SEC within four working days after obtaining the approval of SPAC shareholders, and the target company will be listed successfully. Although the content requirements of the 8murk form are the same as those of the Smurl 1 (or Fmai 1) form, the 8Murk form will take effect without SEC approval. Therefore, the target company does not need to prepare listing materials, conduct a roadshow or pass the (SEC) review of the Securities and Exchange Commission before the completion of the SPAC merger transaction, thus avoiding a series of cumbersome traditional IPO listing procedures. 

SPAC is not only attractive to founders and public investors because of its potential high returns, but also attracts many high-quality companies to list in US stocks in the form of SPAC because of its advantages in speed and ease of listing. According to Dealogic, the amount of SPAC set up in the Q1 U.S. market for Asian companies in 2021 totaled nearly $3 billion, about twice as much as for the whole of 2020. In order to prevent the outflow of high-quality companies and enhance their attractiveness, several major exchanges around the world have also begun to explore the possibility of establishing SPAC and even completed the relevant system construction. For example, the London Stock Exchange plans to change the rules on SPAC in the near future to relax the regulation of SPAC and attract European premium targets to be listed in London. In the Asian market, the Singapore Exchange has launched a consultation to the public on the introduction of the SPAC mechanism, and the SPAC framework is expected to be officially announced in mid-2021 at the earliest. The Hong Kong Stock Exchange is also considering developing a SPAC framework suitable for the Hong Kong market to join the SPAC wave.