Special Purpose Acquisition Company - SPAC

AAA

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 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.

RELATED TERMS
  1. Management Buyout - MBO

    A transaction where a company’s management team purchases the ...
  2. Takeover

    A corporate action where an acquiring company makes a bid for ...
  3. Warrant

    A derivative security that gives the holder the right to purchase ...
  4. Common Stock

    A security that represents ownership in a corporation. Holders ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  6. Blind Trust

    A trust in which the executors have full discretion over the ...
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Mutual Funds & ETFs

    How To Invest In Private Equity

    Private Equity might be a pricey investment, but returns are on the rise and the payoff could be big.
  3. Fundamental Analysis

    Key Players In Mergers And Acquisitions

    Strategic acquisition is becoming a part of doing business. Discover the different types of investor groups involved.
  4. Retirement

    How The Big Boys Buy

    Learn what those in-the-know look for when acquiring a company.
  5. Investing

    SPACs Raise Corporate Capital

    These public shell companies hold many advantages over private equity. Find out more here.
  6. Options & Futures

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  7. Stock Analysis

    Breaking Down the Halliburton Baker Hughes Deal

    Halliburton is using a downturn to get bigger and stronger in the long term, and the company is getting Baker Hughes at a reasonable price as a result.
  8. Investing Basics

    How Does Alibaba Make Money? A Simple Guide

    Alibaba broke IPO headlines--but making news and making money are two different things.
  9. Brokers

    Key Differences Between M&A Advisors And Business Brokers

    For a buy, sale or partnership for one's business, one needs brokers and advisors to proceed ahead. Here are the key differences between business brokers and M&A advisors.
  10. Trading Strategies

    Selecting Mergers & Acquisitions Advisories For Small Businesses

    Mergers and acquisitions advisories aren't just for big players. Many advisory firms cater to small and medium businesses.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center