What is a SPAC?
A Special Purpose Acquisition Company (SPAC) is a shell company that raises funds so that private companies can go public through acquisition, rather than a formal IPO. Private companies can enter the public market faster, while investors may like SPACs because of the special rules a SPAC must follow that can protect investor funds.
How is a SPAC Different From a Regular IPO?
Usually, when a company decides to enter the public market, they go through the Initial Public Offering (IPO) process. Because the IPO process is typically longer and has different requirements, private companies may be able to enter the public market faster and more efficiently through the acquisition process that takes place with a SPAC.
What Are the SPAC Phases?
Phase 1: Initial Public Offering
The ultimate goal of a SPAC is to acquire another company and allow that company to trade on the public markets. The first phase of that is for the SPAC itself to IPO.
Phase 2: Target Announced
Once a SPAC is trading on the public markets, it can decide which non-public company that it wants to acquire.
Phase 3: Approval / Closing
After the target company has officially been acquired, a SPAC usually changes its name to reflect that of the acquired company, and trades as that company.
If you'd like to read more about SPACs, check out this article by Investor.gov. If you ever have questions, the team is always here for you, so feel free to give us a shout on the app’s Chat or via email at firstname.lastname@example.org.