SPAC?? What the heck is a SPAC and why are they gaining more popularity this year?
SPAC is an acronym for a Special Purpose Acquisition Company, which in laymens terms is publicly traded blank check company with a large cash pile hoping to merge with a private company.
This is a beneficial move for both parties involved, the SPAC gets an investment in the private company and the private company gets a nice cash infusion and goes public without going though a traditional IPO route.
This allows for more retail investors to jump in early in the investment life cycle.
This all sounds like rainbows and sunshine right?? What could possibly be bad about this?
Companies merging through a SPAC do not have to go through the full SEC Due Diligence that it would have if it went with the IPO route.
Hydrogen Truck maker Nikola is under investigation by the SEC for claims of fraud.
There could be issues with the SPAC company itself not providing a good merger for the target company. The stakeholders of the SPAC need to vote on the approval of the target company for there to be a merger.
Personally, I’m exited to see how a lot of companies go public through a SPAC turn out. If you’re interested, there’s a more detailed write up here.