One of the Buzzwords in finance this year would be SPACs.
A SPAC(Special Purpose Acquisition Company), loosely put, is a company that is formed to raise funds from the markets through public offerings and the money is later used to acquire an existing company.
SPACs are usually formed by people who have an expertise in a particular business sector. While raising money, they don’t reveal much about their operations, as such, they are also called “blank-check companies“. The monies raised is then put in an interest-bearing trust account. These cannot be disbursed except to acquire a company or to repay them to the investors if it is liquidated. The SPAC generally has 2 years complete a deal or face liquidation. After an acquisition, a SPAC is usually listed on one of the major stock exchanges.
SPACs generally offer a higher price for acquiring companies than Private Equities. They also allow a small company to go through the IPO process efficiently through continuous guidance.
2020 has seen 243 SPAC IPOs compared to 59 in 2019 and has raised about $81billion to-date in 2020 as against $13.6 billion the previous year. Some big players in this space are The popular fund manager Bill Ackman’s Pershing Square Tontine Holdings which raised a record $4 billion in an IPO and Chamath Palihapitiya, who raised at least 6 SPACs this year!