Glossary - Special Purpose Acquisition Company (SPAC)
A Special Purpose Acquisition Company (SPAC) is a corporation formed for the purpose of raising investment capital through an initial public offering (IPO) with the intention of acquiring an existing company. SPACs are essentially shell companies with no commercial operations but are created solely to merge or acquire another business that does wish to go public through the traditional IPO process. After raising funds, a SPAC typically has a set period (usually 18-24 months) to complete an acquisition or face liquidation, where the raised funds are returned to the investors.
Also known as
- Blank Check Company
Use cases examples
- SPAC IPO Prospectus: In its IPO prospectus, the SPAC outlines its strategy to target acquisitions in the renewable energy sector, highlighting the extensive experience of its management team in this industry.
- Merger Agreement: The merger agreement between the SPAC and the target tech startup included terms detailing the valuation metrics, earn-out conditions, and the post-transaction equity distribution among the SPAC shareholders and the startup's original owners.
Considerations for investors
- Assessing the track record and expertise of the SPAC's management team, as their ability to identify and acquire a valuable target company is critical to the SPAC's success.
- Considering the terms and structure of the SPAC, including warrants and the rights of shareholders post-merger, which can significantly impact the investment's return.
Considerations for founders
- Understanding the valuation process used by SPACs and ensuring it aligns with the founder's expectations for their company's worth.
- Evaluating the strategic alignment and operational expertise the SPAC team brings to the table, which can be crucial for the post-acquisition phase.
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