SPAC stands for Special Purpose Acquisition Company and is a type of company that facilitates mergers and acquisitions (M&A) between public companies. SPACs are used to raise capital in order to acquire another company, often one that is not publicly traded. The process works as follows:
1. A group of investors form a SPAC by buying shares in the entity from an initial public offering (IPO).
2. These shareholders provide the necessary funds for the acquisition target, which can be done through equity or debt instruments, or both.
3. The funds are then held in trust until an acquisition target is identified within two years of formation, at which time they will be released to complete the transaction.
4. If all goes according to plan, the SPAC will eventually merge with its target company and become a going concern on its own under a new name and with new management structure; if no suitable acquisition opportunity arises within two years, however, any remaining funds must be returned to shareholders along with interest earned during their holding period.
By utilizing this method of M&A activity instead of traditional private equity deals or venture capital investments, SPACs allow investors access into certain industries without having to conduct due diligence on each individual firm they might seek out on their own; also referred to as “blank check” companies due to their ability offer liquidity while still being able invest in various opportunities without incurring direct risk themselves . Furthermore , since many investors may have limited knowledge about particular industries , it allows them rely upon industry experts such as those found among sponsors who have experience dealing with relevant sector-specific transactions . Lastly , it provides both sides involved – buyers & sellers – greater flexibility when dealing with complex negotiations around pricing & legal considerations compared more rigidly structured traditional funding methods like IPOs .
