SPACS or special acquisition companies are becoming a popular way to raise money. It is a unique and innovative concept that, on the surface, doesn't seem to make sense.
What is a SPAC?
A SPAC is a company that raises money from investors to acquire another company. They are typically listed on an exchange and have a board of directors and management team. Once they raise enough money, they will find a company to buy.
The first Special Purpose Acquisition Company was created in 1993 by Bill Ackman, Pershing Square Capital Management founder. Since then, they have acquired companies such as Hertz Global Holdings Inc., Burger King, and Red Roof Inn.
How Do They Work?
SPACs have two years to find a target company or return the money to investors (including retail and institutional investors). SPAC investors are betting that management can identify target companies with stock prices undervalued by the market and buy them at a discount (or on the cheap) within this time frame.
4. ‘One Examples of Some Well-Known SPACs
Albertsons Companies, Inc. (ABS) is an American supermarket chain formed in 2006 by the merger of Albertsons and Safeway. It became a publicly-traded company on July 26, 2006. In 2019, private equity firm Cerberus Capital Management acquired ABS for $68 billion
The company raises money from investors by selling shares in an initial public offering (IPO). The company then uses the capital to acquire another business, which becomes its operating subsidiary. Then the subsidiary is listed on a stock exchange.
SPAC Management Structure
One of the critical things for investors to look at when investing in a SPAC is the management structure. That is because the acquired company will have its management team, which will be responsible for running the business and reporting to the board of directors at the SPAC.