Overview
A special purpose acquisition company (SPAC; /spæk/), also known as a "blank check company", is a shell corporation listed on a stock exchange with the purpose of acquiring a private company, thus making it public without going through the traditional initial public offering process.[1][2] According to the U.S. Securities and Exchange Commission (SEC), "A SPAC is created specifically to pool funds in order to finance a merger or acquisition opportunity within a set timeframe. The opportunity usually has yet to be identified".[3] SPACs raised a record $82 billion in 2020,[4] a period sometimes referred to as the "blank check boom".[4][2][5][6] Because a SPAC is registered with the SEC and is a publicly-traded company, the general public can buy its shares before the merger or acquisition takes place. For this reason they've been referred to as the 'poor man's private equity funds.'[7] Academic analysis shows the investor returns on SPACs post-merger are almost uniformly heavily negative (however, sponsors at the flotation of the SPAC can earn excess returns),[8] and their proliferation usually accelerates around periods of economic bubbles, such as the everything bubble in 2020–2021, when the volume and quantity of capital raised by SPACs set new all-time records.[5] - Wikipedia
Well-Known Companies That Have Gone Public Through a SPAC
Some of the best-known companies to have become publicly listed by merging with a SPAC are: digital sports entertainment and gaming company DraftKings; aerospace and space travel company Virgin Galactic; energy storage innovator QuantumScape; and real estate platform Opendoor Technologies. (https://www.investopedia.com/terms/s/spac.asp)
"Key Takeaways"
A special purpose acquisition company (SPAC) is formed to raise money through an initial public offering (IPO) 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 and celebrities to the general public.
SPACs have two years to complete an acquisition or they must return their funds to investors.