A special purpose acquisition company (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.
- A special purpose acquisition company is formed to raise money through an initial public offering to buy another company.
- At the time of their IPOs, SPACs have no existing business operations or even stated targets for acquisition.
- Investors in SPACs can range from well-known private equity funds to the general public.
- SPACs have a limited period within which to complete an acquisition or they must usually return the balance of funds remaining (after payment of the Company’s operating expenses) to investors after this period
SPACs are generally formed by investors, or sponsors, with expertise in a particular industry or business sector, with the intention of pursuing deals in that area. The ultimate acquisition target of the SPAC will be in the discretion of the managers of the SPAC.
Selling to a SPAC can be an attractive option for the owners of a smaller company. Being acquired by a SPAC can also offer business owners what is essentially a faster IPO process under the guidance of an experienced partner, with less worry about the swings in broader market sentiment.
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