Special purpose acquisition companies (“SPACs”) are public shell companies that use their initial public offering (“IPO”) proceeds in order to acquire private companies within a specific timeframe. Although SPACs have existed for decades, merging into a SPAC has recently become an attractive alternative for private companies in lieu of undertaking traditional IPOs. Today, SPACs have higher quality sponsors, more blue-chip investors, bulge bracket underwriters, and better sponsor-investor alignment structures than the past.
In this What’s the Deal? guide, we review the basic structure of, and the securities issues that affect, SPAC IPOs, as well as the benefits of merging into a SPAC instead of a traditional IPO.