What Is a SPAC?

SPAC.

A buzzword in recent times.

But have you always wondered what it means?

You are not alone.

That’s why this series is here to help demystify investing terms like SPAC for starters.

So, what exactly is a SPAC?

SPAC stands for special purpose acquisition company.

A SPAC is a “blank cheque” shell company that is designed to take private companies public without going through the traditional initial public offering (IPO) process. 

Even though SPACs have been around for many years, they picked up prominence in recent years, as seen from the Google Trends chart below:

A SPAC has no commercial operations. That means it doesn’t make any products nor sells anything. The SPAC’s only assets are usually the money raised through its own IPO.

After completing its IPO, the SPAC acquires or merges with an operating target company after getting shareholders’ approval.

Shareholders rely on the management team (referred to as sponsors) that formed the SPAC to look for and acquire a target company.

A typical timeline for a SPAC is usually 24 months, by which the SPAC has to complete its merger with the target company.

Otherwise, the SPAC is liquidated and investors get their money back with interest.

The main advantage of a SPAC transaction is that a private company can become a listed company with more certainty and control over its pricing and deal terms as compared to the traditional IPO route.

Examples of US companies that went public via the SPAC route include Virgin Galactic Holdings (NYSE: SPCE), DraftKings (NASDAQ: DKNG), and Opendoor Technologies (NASDAQ: OPEN).

Last month, Singapore’s stock market operator Singapore Exchange (SGX: S68) said that it is looking into the listing of SPACs here, a move prompted by the current popularity of such investment vehicles.

If you want to know more about SPACs, you can also check out this Seedly Opinions, “The SPAC Demystified: Understanding the Most Popular Investment of 2021“.

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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in the companies mentioned.