SPAC

A SPAC, short for special purpose acquisition company, is a shell company that raises money through its own IPO with the sole purpose of using that cash to merge with a private operating company, taking it public through the merger instead of through a traditional IPO. Because it has no operating business of its own when it goes public, a SPAC is also often called a blank check company.

When a SPAC completes its IPO, the money it raises sits in a trust account while its sponsors search for a private company to merge with, usually within a set window of around two years. SPAC investors initially own shares that represent a claim on that trust cash, plus warrants that give additional upside if a deal goes well. Once a target is found, SPAC shareholders vote on the proposed merger and can choose to redeem their shares for their pro rata share of the trust cash instead of continuing on into the combined company.

SPACs saw an enormous surge in popularity as an alternative path to going public, before falling out of favor as many companies that completed SPAC mergers saw their stock prices decline sharply afterward and regulators introduced stricter disclosure requirements around the projections SPAC sponsors could make about a target. For investors, the key things to evaluate are the quality and track record of the SPAC's sponsor, and, once a target is announced, the actual business being acquired rather than the SPAC structure itself.