What is a SPAC - Special Purpose Acquisition Company also known as a Blank Cheque Company?

What is a SPAC?

Ø SPAC stands for Special Purpose Acquisition Company.

Ø SPAC is a company formed with a purpose of raising capital through an Initial Public Offering (IPO), and utilizing that capital to acquire (or merge with) an existing operating company.

Ø SPAC has no underlying business operations of its own, but its shares are traded publicly.

Ø And the capital raised through SPAC IPO will be utilized to acquire an existing operating company, also known as the target company.

Ø Thus, the target company which is being acquired by the SPAC, will become a listed company via SPAC instead of coming up with its own Initial Public Offering (IPO).

Why are SPAC's also called Blank Cheque Companies?

At the time of SPAC's IPO,

· even though SPAC has no commercial operations of its own and

· the target company to be acquired is not yet decided,

· still the funds are being raised in anticipation of an acquisition or merger,

hence SPACs are also known as Blank Cheque Companies.

Statistics

SPACs raised more than $260 Billion in just last 4 years.

Year followed by SPAC IPOs followed by Fund raised

· 2020 - 248 SPAC IPOs - ~$83 Billion

· 2021 - 613 SPAC IPOs - ~$162 Billion

· 2022 - 86 SPAC IPOs - ~$13 Billion