Special purpose acquisition companies (SPACs) are blank-check companies that raise funds from investors through a public offering of shares and warrants (known as a Unit IPO) for the purpose of buying a private firm. SPACs have no assets or business plan and their only intent is to acquire an operational business. Because of limited data (SPACs have only gained popularity in the past decade), there has been very little research into the nature of firms that are targeted for SPAC acquisitions, with most research focusing on short-term performance statistics. A SPAC transaction effectively takes an existing private business and makes it publicly traded; it is an alternate way for firms to go public. This paper will examine what differentiates a traditional IPO from a SPAC IPO by exploring the situations that cause a company to pursue a SPAC transaction, and thus shed light on the unique process and structure that these deals offer. This work expands on the current literature, which has examined only the short-term performance statistics of SPAC transactions, by using a case-study method to investigate several deals in detail and examine the environment that spawned these deals. By following the money trail and analyzing the returns, we will see the incentives for the SPAC founder, the investors, and the target acquisition. My research on SPACs will help all parties evaluate the pros and cons of these specialized transactions.
"Special Purpose Acquisition Companies,"
Fordham Business Student Research Journal:
1, Article 3.
Available at: http://fordham.bepress.com/bsrj/vol2/iss1/3