A Special Purpose Acquisition Company (SPAC) is a company created solely to merge or acquire another business and take it public – a cheaper, faster alternative to an initial public offering (IPO).
Investors essentially write blank cheques to SPACs, which can take up to two years to target and buy another firm.
SPACs offer individual investors the chance to get in on the ground floor of a potentially big stock, but are also highly risky.
A lot of individuals would love to get in early on an initial public offering (IPO) –– a company’s launch on the stock exchange – before the shares start jumping on fever-pitch demand. But pension funds and professionals usually get there first, leaving “retail investors”, as Wall Street calls them, typically picking up the post-offering breadcrumbs – and often paying a higher price.
But a back-door, formerly out-of-favour IPO approach known as a SPAC has recently roared back in popularity among entrepreneurs and venture capitalists. It may offer a new opportunity for small investors to get in on the action at the beginning.
