SPACS - SPECIAL PURPOSE ACQUISITION COMPANIES
Special purpose acquisition vehicles are becoming more and more popular in the alternative space as companies look for ways to go public outside of the traditional IPO. Often called “blank check companies”, SPACs and their management team raise money, typically at $10 dollars a share, to acquire companies.
Anyone from institutional investors to the general public can invest in SPACs. Once the IPO is complete the money is placed in a trust account and can only be used to complete an acquisition of a company. The SPAC typically has two years to acquire a company or the capital is returned to its investors. Once an acquisition is complete, the SPAC is usually listed on the stock exchange.
For companies, SPACs provide a simplified process for making their shares available to the public. SPACs will still need to go through the SEC IPO registration process when they initially offer shares to investors, but the operating company that is acquired will not need to file a full S-1 registration statement. The process of selling a company to a SPAC can be quicker than the traditional IPO while also reducing some of the volatility risk of the traditional IPO.
The coronavirus has also played a role in the demand for SPACs recently. With IPO plans being delayed due to the virus, SPACs offer companies and their venture investors an alternate way to make their shares available to the public.
In 2019, SPACs raised a record $13.6Bn and have raised close to $50Bn over the last 10 years. Some notable SPACs include:
July 22, 2020 Bill Ackman, founder of Pershing Square, sponsored a $4 billion dollar SPAC.
In April 2020, DraftKings moved forward with its merger with Diamond Eagle Acquisition.
Virgin Galactic Holdings merged with Social Capital Hedosophia to bring its shares to the public in 2019.