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Special Purpose Acquisition Company - SPAC

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Dictionary Says

Definition of 'Special Purpose Acquisition Company - SPAC'

A publicly-traded buyout company that raises money in order to pursue the acquisition of an existing company. SPACs raise blind pool money (most of which goes into a trust) from the public for an unspecified merger, sometimes in a targeted industry. Each SPAC is typically sold at $6 per unit for one share of common stock (to be publicly-traded in the future) and two warrants that can purchase additional shares. If an acquisition is not made in two years, the money is returned to the original investors.

Also known as a "targeted acquisition company (TAC)".
Investopedia Says

Investopedia explains 'Special Purpose Acquisition Company - SPAC'

You can think of a SPAC as a kind of reverse IPO. The SPAC raises money to go public first, then looks for a private company to buy - usually in the high-tech sector. Here's how a deal with a SPAC might work: a group of investors wants to buy a company that makes space widgets. They don't know what company, just that it has to be in the new space widget market. The investors go to an investment bank that has been raising funds from the public for the SPAC's management team. The investment bank takes a fee (often around 10%), and the management goes out looking for companies over the next two years. If things go well, management buys a company with cash and/or shares, takes 20% of the profits that are (hopefully) generated, and the shareholders get ownership in a new company.

Critics say that SPACs are nothing more than a slick way for investment banks and management to collect huge fees with most of the risk falling on investors. Proponents say that SPACs serve an important role in bringing new technology to the market.

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