What is a SPAC?
What is a SPAC you might ask? SPAC stands for special purpose acquisitions company. It is set up with the purpose of raising money through an IPO in order to acquire another company later on.
Because of this, a SPAC provides no products for sale and has no commercial operations, and instead are owned and operated by a team of investors. These often called “blank check companies,” bring in investors because of the mystery surrounding what company the SPAC will eventually own.
Once capital is raised, usually around $10 a share, they use this money to invest in another company. They usually find a private company looking to go public through acquisition. Once this acquisition is complete, these SPAC investors can choose whether to swap their shares to the combined companies or get back their investment in the SPAC with interest. The investors typically end up with 20% of the merged company.
Although SPACs have been around for decades, they are gaining recent popularity due to the COVID-19 pandemic due to the extreme market volatility.
While there are risks with SPACs as there are any investment opportunities.
For more information on SPACs and what they entail, we’ve included a few sources that go much more in-depth!