Glossary
Special purpose acquisition company (SPAC)
A shell company that raises money in an IPO with no business of its own, holds the cash in trust and then merges with a private company to take it public.
On this page
A special purpose acquisition company (SPAC) is a publicly listed shell, often called a "blank-check company," that exists only to find and merge with a private business. The merger, known as the de-SPAC, takes the target public without a traditional IPO. SPACs matter because they offered companies a faster route to listing, and because their fee structure and track record give investors a lot to weigh.
How it works
- The IPO. A sponsor forms the SPAC and sells units, traditionally priced at $10, each holding a share and often a fraction of a warrant. The cash goes into a trust account, usually invested in Treasury bills.
- The hunt. The SPAC typically has 18 to 24 months to agree on a deal, or it must liquidate and return the trust money.
- The vote and redemptions. When a target is announced, shareholders may redeem their shares for their pro rata share of the trust, roughly $10 plus interest, even if they approve the deal.
- The merger. The combined company trades under a new name and ticker.
What to watch for
That sponsor "promote," along with warrants and fees, dilutes shareholders who stay in. The projections common in SPAC marketing have often proved optimistic, and many de-SPAC companies traded well below $10 after merging. In January 2024 the SEC adopted rules requiring more disclosure on sponsor compensation, conflicts and dilution, and treating the target as a co-registrant in the merger filing.