Special purpose acquisition company

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Special Purpose Acquisition Company

A company that is set up specifically to buy an existing company. The SPAC issues an IPO and collects investments in exchange for common shares in itself. It then uses the capital it raises to identify and then purchase a target company. Sometimes at the outset it may have identified the industry in which it wishes to buy a company, but never the company itself. If, after two years, the SPAC has not found and purchased a company successfully, the initial investments are returned to shareholders. A SPAC is also called a targeted acquisition company.

Special purpose acquisition company (SPAC).

A special purpose acquisition company (SPAC), sometimes called a blank check company or an empty shell company, uses an initial public offering (IPO) to raise money it will use to purchase or merge with an existing company.

The target company is not named at the time of the IPO, and typically has not been selected by the SPAC management. In some cases, however, the relevant sector or industry is identified in the registration documents filed with the Securities and Exchange Commission (SEC).

The terms of each deal vary, but in general, at least 80% of the capital is held in a trust account to be returned to investors if a deal is not finalized within a specific period, usually 18 to 24 months. Investors must approve any deal and acquire 80% of the new publicly held company.

SPACs are controversial, even though they account for a substantial percentage of new IPOs. Advocates point to the lower fees and greater liquidity than is typical of private equity deals. Critics warn of limited investor protections, including third-party claims against assets held in trust, as well as outsized financial benefits for management and underwriters.

References in periodicals archive ?
With an interesting risk/return profile, SPACs provide a unique and compelling investment for a portion of an investor's portfolio.
SPAC IPOs are typically a package deal, with IPO investors getting a unit consisting of one common share and one warrant.
TRADE ON NATIONAL EXCHANGES AND EXCHANGE REQUIREMENTS HAVE LED TO TIGHTER REGULATORY STANDARDS FOR SPACS
Requirements to list on national exchanges--particularly on the NASDAQ, (176) and the New York Stock Exchange ("NYSE) (177)--codify some Rule 419 protections to which most SPACs are exempt.
Only last week, Heckmann Corporation became the first SPAC to list on the New York Stock Exchange, moving over from the American Stock Exchange, and may be blazing a trail for other companies planning on buying assets in China.
Most SPACs are traded on the American Stock Exchange due to its lenient listing requirements.
SPACs blatantly violate one of the oldest precepts in Hollywood--the use of other people's money.
In our client's portfolios, we hold a basket SPACs, similar to a laddered bond portfolio.
The value of a SPAC unit package often runs inversely to investor's perception of the management team's prospective success in selecting an accretive acquisition candidate.
Arena said the company is now actively looking at different projects and development sites in which to invest and expects the SPAC to make its first acquisition within the next few weeks.