Here we have a SPAC simple example. We start off with the sponsor investing. Now, on the right hand side we've got the sources of funds, and here we have equity of 1 million. But then on the left hand side we have the uses of funds. What did we use that 1,000,004? At the moment, it's just cash sat at the bank. So an empty shell company is formed and minimal funds have been added. So what happens next? Well, the Shell Co or SPAC IPOs, all of a sudden our sources of funds, our equity has jumped from the 1 million up to 70 million. Our left hand side, our uses of funds, in this case cash because we haven't spent it yet, has also jumped up to 70 million.

So a blind pool of cash has been raised through the IPO to acquire a private operating company. The investor cash is placed in trust now this is to make sure that the SPAC management don't run off with the money. What happens after this is the Shell Co or SPAC acquires a target. We notice now that the equity in this example is unchanged. So our sources of funds still 70 million, but we now have a very large EV or enterprise value. We've bought an operating company, a private operating company, spent most of our cash and acquired ourselves a great big, large EV. Some of the cash is still left over, so cash spent and target operating company acquired acquisition is typically within 24 months. And this timeframe is put in by the shareholders of the SPAC to make sure their money is actually invested promptly.

Now you might notice in the bottom right hand corner it says it's also common to see an equity issuance on acquisition. Imagine, instead of buying a company for 65, we were buying one for maybe 500. We clearly don't have enough cash for that. So what we would do, instead of paying in cash, is we would pay with an equity issuance, i.e. give shares to the target shareholders.

So if we were looking to buy a much larger company than we've got cash for, our equity would have to jump up maybe to four or five, 600, and we would then be able to buy a very large EV.