What is a SPAC? A SPAC—also known as a ‘blank check company’— is a publicly held investment vehicle created to merge with a company, thereby bringing the company public. A SPAC begins with a sponsor forming a corporation and working with underwriters to list the SPAC on a public exchange. In the IPO, a SPAC sells units consisting of a share and a fractional warrant. The proceeds of a SPAC’s IPO are placed in a trust and invested in Treasury notes. The SPAC typically has two years to identify a merger target and complete the merger, otherwise the SPAC liquidates and distributes the funds in the trust back to the public shareholders (see pg. 17 for more details.) Historically, the types of companies that have gone public through a SPAC have tended to be high-growth companies with long-term or more complex stories that wanted a longer marketing period, and/or the ability to issue projections, or those who wanted to raise more proceeds than would have been available to them through a traditional IPO. As you can see in the chart, the growth in SPACs has been tremendous the past year. It's not likely this growth rate is sustainable, so investors should be cautious before plunging in!
