SPAC is the new buzz word amongst money managers, With $ 160 billion raised via SPACs through last year upto now it is equalling the IPO market on Wall Street. So what is a SPAC and should you invest in one?
Speaking of SPAC
SPAC stands for Special Purpose Acquisition Company and more popularly also “blank cheque companies.”
What does it do?
Well it really does nothing , its just a cash shell company created for holding investors’ money and then spending it. SPACs are created for one purpose: to merge with real businesses that has an actual business.
How does it work?
SPAC raises money from investors to then buy a private company, effectively taking the company public and without a traditional IPO. SPACs behave much like PE firms in that a group of investors raise funds to strategically buy companies – the main difference being that the SPAC executes a public versus private offering.
Is it not risky?
SPACs are a bit like the mystery box on a gameshow as the SPAC does not announce it’s acquisition target ahead of raising money from the public.
But….
This helps retail investors get in early they are able to buy shares of the SPAC for as little as $10 a piece and then post the deal could easily double their investment as the SPAC could buy a hot new innovative company.
How do you assess a SPAC?
Unlike the traditional way of analysing a company through its P&L and balance sheet, SPAC investors look at the performance or the goodwill of its managers/sponsors.
The Buzz is evident
From Jay Z to Shaquille O’Neal everyone is getting a piece of the SPAC pie. Infact Cassius Cuvée even got a hit single SPAC Dream streaming on You Tube. And trend is here to stay.