Special Purpose Acquisition Company is a blank-check company that raises capital in an IPO with the sole purpose of later acquiring a private operating business.
A special purpose acquisition company (SPAC) is a publicly listed shell company formed by sponsors with no commercial operations of its own. Its sole purpose is to raise capital through an IPO and then identify and acquire a private operating business within a fixed period, typically 18-24 months.
The acquisition is called a de-SPAC transaction, after which the target company becomes the surviving listed entity.
In a typical structure, public investors buy units in the SPAC IPO, often consisting of one share plus a fraction of a warrant. The IPO proceeds are placed in a trust account and earn interest while the sponsors search for a target. If a deal is announced, public shareholders can either remain invested or redeem their shares for the trust value plus interest.
If no deal is consummated within the deadline, the SPAC liquidates and returns trust funds to investors.
Sponsors usually buy founder shares (often 20% of the post-IPO equity) for nominal consideration and earn a substantial promote if a deal closes, which has led to debate about misaligned incentives. After a 2020-21 boom, SPAC volumes collapsed amid post-merger underperformance and tighter SEC rules.
Founders consider a SPAC merger when they want a faster route to public markets than a traditional IPO and the certainty of a pre-negotiated valuation. Investors evaluate the sponsor's track record, the trust value per share, the warrant coverage, the redemption mechanics, and the quality of the target business.
Boards take seriously the SEC's 2024 SPAC rules, which clarified that target companies are co-issuers in the de-SPAC registration statement and tightened liability for forward projections.
See what a company actually costs in year one, and how the jurisdictions compare on tax, capital and timeline.
