What is a SPAC?!

What is SPAC

A Special Purpose Acquisition Company (SPAC) is a company set up by investors (SPAC sponsors) with the sole purpose of raising money through an initial public offering (IPO) to acquire another company. In short, a SPAC has the “special purpose” of solely raising money to “acquire” another company, but does not make any products or sell anything itself.

Rather than go through the very long traditional IPO process with the SEC (up to half a year), a SPAC offers an alternative of going “public” within months by offering low price shares. These shares are offered to other investors to raise the capital necessary to acquire a private company to merge with the SPAC. Sponsors are betting on this acquisition to increase the value of shares for the newly combined entity–thus making a profit for investors and sponsors alike.

In return, investors in SPAC’s have the ability to earn interest on their money through what is called a “trust account” which is held by the SPAC. Their dollars will accrue to acquire a target private company within the span of two years. When the target private company is finally acquired by the SPAC, investors may choose to sell their shares in return for the interest earned in the trust account, plus their original investment. Or, investors can continue to hold their shares of the newly combined entity at their new market value. However, if a company is not acquired within the specified time frame, the SPAC itself is liquidated, and investors have their money returned along with the interest earned from the trust account.

Key Considerations:

  • Who are the SPAC Sponsors? Management expertise is critical.
  • What is the target company selected for acquisition? The target company is often unknown until selection and/or after an initial “IPO” investment.
  • What is your appetite for risk as an investor? SPAC’s tend to be higher risk investments for all the reasons mentioned above. 
With the end of a difficult year, Americans are now looking forward to their financial futures. According to Bank of America’s survey polled over 2,000 consumers nationwide – saving and retirement planning topped off as two of the most popular financial resolutions for 2023! With sound money management strategies in place, it is possible not […]
How to Determine the Investment Portfolio That Best Fits You The first step in any investor’s journey is identifying what your risk tolerance is when it comes to investments and your money.  Investors are generally grouped into three types of risk categories – high, moderate, or low. These categories help determine how much risk you […]
  In times of uncertainty such as these, it is essential to make informed and responsible decisions about your finances, which requires setting specific short- and long-term goals, as well as seeking expert advice to guide you along the way. Investing is key to wealth building, however, it is difficult to get started without the […]
Many Americans do not access investment opportunities in the stock market due to the barriers that the system has imposed in their path, which range from complicated processes, disinformation, or even more simply: they find it intimidating. This situation has, for the first time in decades, pushed the number of investors in the stock market […]
Wizest was built to empower anyone to invest like a financial expert–through financial experts! Nevertheless, many of our users want to learn about the world of finance for themselves. Therefore, we’ve compiled this cheat sheet of finance and investing terminology. You may see them appear in the posts and bios of our Wizest experts. (When […]
Swamped by the ever-growing list of new podcasts? How do you know what you’ll get searching “money,” “finance,” or, “investing,” on Spotify? Wizest has surveyed the landscape on your behalf, choosing our six favorite podcasts, each with a particular goal that our investors tend to have in mind.  Best for Daily News: Wall Street Journal’s What’s […]
Connecting investors with advisors

Are you an expert?

Three big benefits for financial experts: zero overhead costs, a national clientele base, additional income. Need we say more?