Special Purpose Acquisition Companies (SPACs) are publicly traded companies created solely to acquire or merge with an existing private company, thereby taking it public. They are also known as 'blank check companies' because they do not have any commercial operations at the time of their IPO.
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SPACs raise capital through an Initial Public Offering (IPO) before identifying a target company for acquisition.
The lifecycle of a SPAC generally includes three phases: IPO, target search, and merger/acquisition.
If a SPAC does not complete a merger within two years, it must return the raised funds to investors.
Investors in SPACs typically include institutional investors and high-net-worth individuals attracted by potential high returns.
The popularity of SPACs has surged in recent years, becoming a significant trend in US financial markets.
Review Questions
What is the primary purpose of a Special Purpose Acquisition Company (SPAC)?
How long does a SPAC have to complete an acquisition before returning funds to investors?
Why have SPACs become increasingly popular in recent years?
Related terms
Initial Public Offering (IPO): The process by which a private company offers shares to the public for the first time.
Mergers and Acquisitions (M&A): The consolidation of companies or assets through various types of financial transactions.
Private Equity: A form of investment where funds are directly invested into private companies or used for buyouts of public companies, leading to their delisting from stock exchanges.
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