So you want to invest in SPACs? Well, there are essentials to learn before diving in, and this article should give you a quick rundown of all the crucial information. For those unfamiliar with the term, SPAC stands for Special-Purpose Acquisition Company. Read more to understand what they are, how they function, and who can get involved in the process.
What are SPACs?
SPACs are shell companies – they don’t create products or services but instead exist to raise funds through sponsorships and mergers. Once a merger occurs, the SPAC will take over the operations of the other company. The other company wins in this scenario because they have effectively gone public without the lengthy or expensive process typically involved.
How Do SPACs Form?
When it comes to creating a SPAC, it’s very similar to starting up a traditional IPO. To make a SPAC, one or several investors (usually more) will get together, pooling assets and drumming up further interest. By the end, other investors such as family offices will buy into the offering, hoping to get a hand on the potential earnings.
On that note, if you’re wondering who can form a SPAC – the answer is anyone. As long as you can persuade investors and shareholders to buy the shares, it is possible to create a SPAC.
How Much Do Shares Cost?
As with any company opting to sell shares, no set amount of rules needs to be followed. However, it is most common to see SPAC shares sold for around $10 apiece, as this is traditional – not to mention a tried and true price.
Where Does the Money Go?
Once a SPAC has raised its intended monetary goal, all of that money goes into a blind trust. The money will stay here until it is time to begin acquiring new companies (either one or multiple). Naturally, at that point, the funds will be used to buy out the companies the SPAC is interested in.
What is the Time Frame for SPACs?
Since SPACs have to follow a fair amount of regulation, they typically have two years to gather enough funds and achieve final purchases. If they fail to do so within this time frame, the money must be returned to shareholders (investors).
This blog/website is only made available for educational purposes. It is designed to give visitors general information and a general understanding of select financial topics. It is not intended to provide specific financial or investment advice. Conduct your own due diligence or consult a licensed financial advisor/broker before making any and all financial/investment decisions.