The hottest in finance is four-letter. NBA star Shaquille O’Neal has one. So does former House Speaker Paul Ryan. The same goes for the billionaire silver hair hedge fund, William Ackman.
It’s called SPAC and is increasingly the preferred source of funding for private companies that want to go public. Richard Branson’s space exploration firm, Virgin Galactic Holdings Inc., was made public through a SPAC in 2019, and sports betting firm DraftKings Inc. he did it last year. About 300 SPACs are seeking deals, armed with about $ 90 billion in cash. And they’re producing more in a furious clip: so far this year, an average of five new SPACs have been released each business day.
“If you don’t have your own SPAC, you’re nobody,” said Peter Atwater, founder of research firm Financial Insyghts.
SPACs, which mean special purpose acquisition companies, are essentially large cash funds listed on a stock exchange. Its purpose is to find a private company, buy it and make it public quickly. Some on Wall Street call them “blank check companies” because investors who support SPAC put their money in months before an acquisition target is identified, trusting the people they lead. the program to find a good deal.
These offers generate a lot of interest because they produce large paydays for their creators, facilitate the start-up of emerging companies in hot industries such as electric vehicles to take advantage of a frothy phase in the stock market, and offer everyday investors a new path to hot broth. When a SPAC buys a company, it merges with it in a kind of accelerated IPO process (the so-called “reverse merger”), while ignoring the normal examination that a IPO receives.