What is a SPAC? 🌎
5 min read
May 10, 2022
In 2020, there were 248 SPACs created in the US, and already 224 in 2021 in less than a quarter.
SPACs raised $64 billion in 2020, almost the same amount as traditional IPOs ($67 billion).
Well… SPAC is in every mouth recently. The fact is, everyone writes this 4 letter bingo word in their medium article, clubhouse room, or substack newsletter but doesn’t explain it. If you’re not inside VC/PE/IPO world, there is a lot of chances you don’t have a clue about what SPAC means, and it’s normal.
Even juniors or investment interested people took a while to really understand what it was and why everyone was talking about it right now.
The term SPAC or “special purpose acquisition company” refers to investment vehicles specifically dedicated to an acquisition. SPACs are formed for the sole purpose of raising capital through an initial public offering (IPO), with the objective of acquiring one or more existing companies.
Investors interested in SPACs are looking for two major elements: who are the founders, and what does the company do? The founders of SPACs must be high-profile investors from the private equity world who are financially interested in the future success of the entity. Next, it is important to know how the SPAC is structured and what the founders will get out of the deal.
Still hard to understand? Look this scheme:
The main interest of SPAC is to allow the public to carry out (unlisted) private equity transactions through the stock market. Investors thus benefit from all the guarantees offered by listed companies (notably in terms of regulation and information) and can then easily exchange securities.
The other major advantage of Spac is its ability to act quickly. With large cash reserves at their disposal, once they are listed, they can seize opportunities quickly… much faster in any case than if they had to raise funds after having identified the target.
That’s why famous investors like Xavier Niel or Chamath Palihapitiya start various SPAC with specific objectives. Investors who fill these SPACs have a strong belief and confidence about their expertise thanks to previous success. But for so many other benefits:
Now, no need to do a yes with your face when someone talks about SPAC, you can go further!
You can even put exotic names who’s SPAC’s actors in the discussion like Shaquille O’Neal, Richard Branson, or even Serena Williams. You’re welcome.
by Matthis Dessus