SPAC

A Special Purpose Acquisition Company (SPAC), also known as a "blank check company," is a publicly traded company formed for the purpose of raising capital through an initial public offering (IPO) with the intention of acquiring an existing company. SPACs are typically established by investors, often with expertise in a particular industry or sector, who seek to pool funds in order to identify and acquire a private company, thereby taking it public without going through the traditional IPO process.

The structure of a SPAC typically involves the following phases:

• Formation: A group of investors, often led by experienced executives or investors (known as sponsors), forms the SPAC.

• Initial Public Offering (IPO): The SPAC goes public through an IPO, selling shares to raise capital. However, unlike traditional IPOs where the purpose is to fund a specific business, the funds raised by a SPAC are placed in a trust account, typically with minimal operating history or assets.

• Target Acquisition: After the IPO, the SPAC has a limited timeframe (usually around 18-24 months) to identify and acquire a target company. The target company is often not specified at the time of the IPO, giving the SPAC flexibility to pursue opportunities in various industries.

• Merger or Acquisition: Once a suitable target is identified, the SPAC merges with or acquires the target company using the funds raised during the IPO. This process effectively takes the target company public, allowing it to bypass the traditional IPO process.

• Public Listing: Following the merger or acquisition, the combined entity becomes publicly traded on a stock exchange under the target company's name and ticker symbol.

See also Accounting Basics Explained via a SPAC and Public Company Mergers and Acquisitions.