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What is a SPAC?

What is a SPAC?

August 20, 2021
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Welcome to the Weekly SUMmary - 08/20/2021

What is a SPAC?

This is a very popular investment lately. Let’s explore what it is.

“SPAC” stands for special purpose acquisition company—what are also commonly referred to as blank check companies.  SPACs have become a popular vehicle for various transactions, including transitioning a company from a private company to a publicly traded company.  Certain market participants believe that, through a SPAC transaction, a private company can become a publicly traded company with more certainty as to pricing and control over deal terms as compared to traditional initial public offerings, or IPOs.”1

To attempt to make this slightly easier to understand this entity is created by a singular or group of investors that are seeking to make a profit by virtually putting a wrapper on a singular or group of companies that they will then sell to a larger group of investors. Does this sound familiar?  It should.  This is the same template used in many other types of investments.   For example:

Stocks - ABC Corp  is attempting to be profitable selling widgets in their local area decides to open up their territory to the state, nearby states, go national, etc. The quickest way to do so is to gain access to a large group of investors on the open market. They can release an Initial Public Offering (IPO) after filing with proper authorities, etc. Upon IPO, ABC Corp has the funds to open new locations. ABC Corp has turned into a stock. See previous blog here:

Real Estate Investment Trusts (REIT) - an entity creates a group of real estate (or real estate businesses) to offer to investors. See a previous blog here: 

Master Limited Partnerships (MLP) - an entity creates a group of natural resources (or natural resource companies) to offer to investors. See previous blog here:

Mutual Funds - a large corporation creates a team to group investments to offer to investors. See previous blog here:

Exchange Traded Funds - a large corporation creates algorithms or has a small team to group investments to offer to investors. See previous blog here:

Hopefully it is becoming clear that most investments are a group of other investments in which the developers or originators of the group become the most profitable as they typically have very little risk. The group typically has not established the business(es) that are ultimately being purchased. Instead, this group has created a wrapper on a singular or group of investments that they profit from selling to a larger audience.

As with most things in the financial industry, SPACs are complex. This is due to the intricacies of gaining the capital necessary to prepare for sale to the masses, registrations and filings to regulators, and the other steps that must be taken to market this type of product. 

Understanding these complexities is difficult. If you’re interested in discussing more book an appointment here: 

In the meantime...

Do SUMthing smart with your money.


References:
1 https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/what-you?utm_source=google&utm_campaign=2021_nonbrand_campaign&utm_medium=search
The content provided is meant to be educational in nature only and not to be construed as investment advice. Investments referenced are for example only and should be considered strongly prior to selecting for your portfolio. Investors should research or seek professional advice prior to buying and selling securities.
Investors should consider the investment objectives, risks, charges, and expenses associated with all products before investing; specific plan information is available in each issuer's official statement, which can be obtained from your financial professional. Be sure to read carefully before investing.