Let's say it wants to enter a de-SPAC transaction with Firm X that wants to issue 10% for 100 million, but there is 120 million in the trust. What happens to the extra 20 million?
My understanding is that if there isn't enough money, the SPAC would have to find a cheaper deal or get a loan from its sponsor, for example a PE fund.
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Too much cash is not going to be an issue, generally speaking. The reason SPACs only do around 10% of the equity is to limit the harmful effects of the sponsor promote on the combined entity. Sponsor promote of 20% * 10% is much more palatable than 20% * 50%.
Counterbalancing the promote issue is the marketable float issue: you want enough publicly traded shares that the company trades well and has sufficient liquidity. Having an abnormally low amount of the stock owned by the SPAC would lead to low stock value because of an illiquidity haircut. For this reason, there’s a sweet spot around 10% that leads to good liquidity and less dilution of value by the sponsor, which is good.
Another thing to consider is redemptions. Not all of that $120MM is going to follow through after the vote. Assuming 1/6th of cash redeems, you’ve got your target figure anyway. This is a non-issue in general. Let me know if you have questions.
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