Glossary
Definition
SPAC (Special Purpose Acquisition Company)
A blank-cheque company raised via IPO to merge with a private company.
A Special Purpose Acquisition Company (SPAC) is a company with no operations that raises money through an IPO for the sole purpose of merging with a private company — effectively taking that company public. SPACs were extremely popular in 2020–2021 as an alternative to traditional IPOs but fell out of favour as most targets underperformed.
Frequently Asked Questions
What is the risk for SPAC investors?
SPAC investors commit money before knowing the acquisition target. If the chosen target underperforms, investors lose money. Studies show the average SPAC merger significantly underperforms the market in the years following the deal.