A SPAC is a company that raises money from investors to acquire another company. They are typically listed on an exchange and have a board of directors and management team. Once they raise enough money, they will find a company to buy.
The first Special Purpose Acquisition Company was created in 1993 by Bill Ackman, Pershing Square Capital Management founder. Since then, they have acquired companies such as Hertz Global Holdings Inc., Burger King, and Red Roof Inn.
SPACs have two years to find a target company or return the money to investors (including retail and institutional investors). SPAC investors are betting that management can identify target companies with stock prices undervalued by the market and buy them at a discount (or on the cheap) within this time frame.
Once this happens, shareholders from both companies would receive SPAC shares in a new entity created with their combined assets – which means more value for everyone involved if things go according to plan. Because companies have considerable flexibility on their acquisition targets, SPACs are often called “blank check” companies.
– They are easy to access for many investors since you do not need special qualifications like passing through accredited investor status.
– There are not any lockup periods where you can’t sell your shares of SPAC stocks right away, unlike with traditional IPO
They are highly speculative investments since there isn’t much known about their assets after finding another company or business to buy out. That means the market value is unknown, making it harder to determine whether or not they are overpriced and therefore at risk of losing money on the investment.