SPAC Definition
A Special Purpose Acquisition Company (SPAC) is a type of investment fund that allows public stock market investors to invest in private equity type transactions, particularly leveraged buyouts. SPACs are shell or blank-check companies that have no operations but go public with the intention of merging with or acquiring a company with the proceeds of the SPAC’s initial public offering (IPO).
SPAC Key Points
- SPACs are also known as “blank check companies.”
- They are formed to raise capital through an IPO with the purpose of acquiring an existing company.
- SPACs have two years to complete an acquisition or they must return their funds to investors.
- They offer a faster and more efficient way for a company to go public compared to traditional IPOs.
- Investors in SPACs can range from well-known private equity funds to the general public.
What is SPAC?
A SPAC is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. Also known as “blank check companies,” SPACs have been around for decades. In recent years, they’ve become more popular, attracting big-name underwriters and investors and raising a record amount of IPO money in 2019.
Why is SPAC important?
SPACs are important because they offer a more efficient way for a company to go public than the traditional IPO process. This is particularly beneficial for smaller, growth-oriented companies that might not have the resources to go through the traditional IPO process. Additionally, SPACs allow retail investors to invest in private equity type transactions.
When is SPAC used?
A SPAC is used when a private company wants to go public without going through the traditional IPO process. This could be because the company is seeking to go public quickly, or because the company wants to avoid the scrutiny and regulatory requirements associated with an IPO.
Who uses SPAC?
SPACs are used by a wide range of investors. This includes institutional investors like hedge funds and private equity firms, as well as retail investors who want to invest in a specific company or industry. The management teams of the companies being acquired by the SPAC also play a significant role in the process.
Where is SPAC used?
SPACs are used in the financial markets, particularly in the United States. They are listed on a stock exchange and are subject to the same regulatory requirements as other publicly traded companies.
How does SPAC work?
A SPAC is created by a group of investors, or sponsors, who form a new corporation. This corporation then goes public through an IPO, raising capital from investors. The money raised in the IPO is placed in a trust while the SPAC searches for a company to acquire. Once a target company is found, the SPAC’s shareholders vote on the proposed acquisition. If approved, the SPAC uses the funds from the IPO to acquire the company, which then becomes a publicly traded company. If the SPAC cannot find a suitable acquisition within two years, it must return the funds to the investors.
