A SPAC, or special purpose acquisition company, is a type of shell company specifically designed to raise capital through an IPO.
SPACs have become a way to invest in private companies going public because, after the IPO, the shell company uses the raised capital to merge with or acquire another company.
Between January 1, 2020, and August 21, 2020, SPAC IPOs in the US raised a record $31 billion through 78 transactions, reportedly outpacing traditional IPOs in the summer months. And in January and February of 2021, there were 70 SPAC mergers globally – six times the amount during the same period last year – with the combined value of February deals reaching an all-time record of $108.6 billion, according to Thomson Reuters, which had access to a March 1 report from financial markets data company Refinitiv.
What exactly is a SPAC?
A SPAC is a cash shell business that lists on a stock market with no commercial operations. It has the sole aim of identifying private businesses to acquire in a specific ecosystem, thereby turning the private business into a publicly listed company without the latter going through the traditional route of an Initial Public Offer (IPO) process. SPACs are therefore essentially “blank cheque” companies. If you invest in the shares of a SPAC, you are putting your faith in the sponsors of the SPAC to identify credible targets to merge with.
How Does it Work?
The sponsors of the SPAC invest a nominal amount for their shares (to cover costs) and will retain 30% of the SPAC.
Ordinary investors will buy their shares at a fixed amount such as $10 per share when the SPAC lists. The cash raised will sit in an account earning interest until the merger takes place and put to shareholders for their approval.
If the merger deal does not take place within two years, the SPAC will wind up and return cash to investors.
The financial world in the 21st century is evolving and in the next 10-20 years we will witness changes that will reinvent the way we do business, accumulate assets, and deliver advice.
75 Years of growth has created unprecedented, accumulated family wealth that is now being transferred from generation to generation and is creating opportunities to create new efficient methodologies of managing wealth and delivering advice.
Technology and innovation are creating new financial ecosystems of efficiency and access to strategies that just a decade ago were unthinkable for the mass affluent.
New emerging investment methodologies guided and tested by leading academic global institutions such as Yale, Harvard, Oxford, and Cambridge, fueled by the public looking to invest long term in sustainable income creating assets are creating a tsunami of monies in non-liquid assets.
The SPAC Strategy
The SPAC will target and acquire a variety of synergic companies that will focus on innovation and the methodologies of tomorrow with the potential to change market realities and reach global audiences.
The SPAC Risk
SPACs are recognized as a blank check company because you’re essentially writing a blank check by investing. At the time you invest in the company, you don’t know what firm it will ultimately acquire, or even whether it will make it through a successful initial business combination.