Special Purpose Acquisition Company (SPAC)

SPACs are often called blank-cheque companies. A sponsor forms the SPAC and lists it on a stock exchange, raising money that is held in a trust account. The SPAC then has a limited time, often around two years, to find a private company to merge with. If it fails, the money is returned to investors.

When a target is found, the merger, often called a de-SPAC transaction, takes the private company public without a traditional initial public offering. SPAC shareholders can usually choose to redeem their shares for cash if they do not like the deal.

For example, a SPAC might raise 300,000,000, then merge with a private electric vehicle company, which becomes a listed company.

SPACs boomed in the United States in 2020 and 2021. Supporters argue they offer a faster route to listing. Critics point to high costs, generous rewards for sponsors that dilute other shareholders, optimistic projections and poor average share price performance after mergers. Regulators have since tightened disclosure rules.