SPAC
What is a SPAC?
The acronym stands for Special Purpose Acquisition Company.It is also known as a “blank check” shell company as it has nobusiness operation.
The aim is to raise funds through an initial public offering (IPO)and to merge with an already operational private company inorder to bring them publicly listed on the stock market.
Who are the SPAC stakeholders?
SPONSORS
Experts who form the
management team.
INVESTORS
They buy units (shares,
warrants, rights) of the SPAC.
TARGET
An existing private company identified by sponsors to form a business combination.
How does a SPAC work?
A SPAC is a special purpose acquisition company that goes public without any commercial operation.
The private company,therefore, goes public by merging with a shell company (SPAC).
PROs
- Fast route for private companies to go public
- Risk-free opportunity for investors (in case of opt-out option: capital +interest)
- High profit for the sponsors, interested to create a high quality business combination for the investors
CONs
- The success of a SPAC depends on the strength of the sponsors
- Time constraints in the choice of the target company
- Performance may fall far short of expectations
