There's no stopping the SPAC, which emerged from obscurity to seemingly take over finance in 2020.
Special purpose acquisition companies, or SPACs, went from a back-of-the-shelf financial vehicle to one of the biggest segments of initial public offerings, with a record $78 billion raised in the U.S. this year, according to data compiled by Bloomberg. That exceeded the combined total of SPACs in all previous years and made up about 45% of this year's record $177 billion IPO volume, the data show.
Meaning of Special Purpose Acquisition Company (SPAC)?
A special purpose acquisition company (SPAC) is a company with
No commercial operations
Raising capital through an initial public offering(IPO)
Purpose of acquiring an existing company
How a SPAC Works？
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. In creating a SPAC, the founders sometimes have at least one acquisition target in mind, but they don't identify that target to avoid extensive disclosures during the IPO process. (This is why they are called "blank check companies." IPO investors have no idea what company they ultimately will be investing in.) SPACs seek underwriters and institutional investors before offering shares to the public.
The money SPACs raise in an IPO is placed in an interest-bearing trust account. These funds cannot be disbursed except to complete an acquisition or to return the money to investors if the SPAC is liquidated. A SPAC generally has two years to complete a deal or face liquidation. In some cases, some of the interest earned from the trust can be used as the SPAC's working capital. After an acquisition, a SPAC is usually listed on one of the major stock exchanges.
How to know the SPAC？
You can see the IPO calendar in 'IPO Buzz'. The upcoming 'IPO Buzz' will show you every week's IPO.
Advantages of a SPAC？
Selling to a SPAC can be an attractive option for the owners of a smaller company, which are often private equity funds.
More expensive stock price. Selling to a SPAC can add up to 20% to the sale price compared to a typical private equity deal.
A faster IPO process. Under the guidance of an experienced partner, IPO process will be faster. And people can be less worry about the swings in broader market sentiment.
source: Bloomberg, Investopedia