What Is a Special Purpose Acquisition Company ("SPAC")?



A special purpose acquisition company (SPAC) is a blank check company that raises money to buy other businesses. It was created to provide a faster, simpler, and more straightforward approach to launching an IPO than competing with an existing public company.


SPACs allow investors to contribute money to buy one or more unspecified businesses identified after the IPO. The money goes to an interest-bearing trust account until a preset period expires or the acquisition goes through.

If the planned acquisition or merger doesn't happen, the SPAC deducts bank and broker fees, then returns the funds to the investors.


At the time of the IPO, SPACs have no current business operations and no specific business plan or purpose.


How a SPAC Works


The investors who form a special purpose acquisition company are experts in a particular industry or business sector. Their goal is to go after deals in that specific area of expertise.


To avoid detailed disclosures during the IPO process, the founders conceal the target identity. This is where the name blank check companies come from.


The starting capital comes from the founders, and some interest earned from the trust goes to the working capital by the SPAC.


SPAC Capital Structure

  • Public Units


All the money raised in the IPO goes to a trust account. In exchange for the capital, investors get to possess units. Each unit has a share of common stock and a warrant to buy more stock at a later date.

A warrant gives investors extra compensation for investing in the SPAC. After the IPO, the units separate into shares of common stock and warrants and can trade in the public market.


  • Founder Shares

When starting the SPAC registration, the founders buy founder shares. The purpose of the shares is to reimburse the team, as they have no authority to earn any salary or commission until the acquisition completes.

After an acquisition, the founders generate profit, usually 20% of the common stock, from the stake in the new company.

  • Warrants

The publicly traded units come with a piece of a warrant to permit investors to buy a full share of common stock.

One warrant is excisable for a fraction of a share (either half, one-third, or two-thirds) or a full share of stock. This varies depending on the bank issuing the IPO and the size of the SPAC.

Founder warrants and public warrants are different.


  1. Public warrants are cash-settled, where to get the full share of stock, the investor pays the full price of the warrant in cash.

  2. Founder warrants are net-settled. Therefore, investors don't need to pay cash to receive a full share of stock. The shares of stock are at a fair market value that is the same as the difference between the price at which the stock trades and the warrant strike price.

Governance and Regulation


Most of the independent board members of SPACs should have the stock exchange listing requirements. However, same as any company that has newly gone public, SPACs are subject to phase-in exceptions.


The sponsor at IPO chooses the SPAC directors. The SPAC board appoints any extra directors, where only the founder shares vote until the IPO transaction.



The majority of SPACs become established as Delaware corporations. However, some are in foreign jurisdictions to acquire foreign assets.


SPACs are either listed on the NASDAQ or the NYSE. The listing requirements and pricing on both are very similar.

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