A SPAC, or Special Purpose Acquisition Company, is an entity with no commercial activities, built with the specific purpose of acquiring a company. SPACs are also sometimes called blank check companies.
SPACs have seen some serious growth this year. By March 19, SPACs raised $87.9 billion — more than all of last year’s $83 billion. Since Covid — and even a little before that — SPACs have been gaining more interest from investors.
How SPACs work: big fish looking for small fish
A whale shark weighs 19,000 kg and survives by swimming around with its mouth wide open and feeding on smaller creatures like plankton and fish.
In the financial waters, SPACs are kind of similar. Only they zero-in on one small fish — a promising company.
SPACs are usually assembled by a bunch of investors or Wall Street professionals. They’re built solely to raise capital to acquire a company they deem will succeed as a public entity. SPACs do that by selling stock — usually at $10 a piece. There’s also a warrant included, in case investors want to buy more stock later at a fixed price.
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