A special-purpose acquisition company (SPAC; ), also known as a blank check company or a blind-pool stock offering, is a shell corporation listed on a stock exchange with the purpose of acquiring (or merging with) a private company, thus taking the private company public through a procedure which requires fewer regulatory filings and has fewer safeguards for investors than the initial public offering (IPO) process.[1][2][3] According to the U.S. Securities and Exchange Commission (SEC), SPACs are created specifically to pool funds to finance a future merger or acquisition opportunity within a set timeframe; these opportunities usually have yet to be identified while raising funds.[4]
In the U.S., SPACs are registered with the SEC and considered publicly traded companies. The general public may buy their shares on stock exchanges before any merger or acquisition takes place. For this reason they have at times been referred to as the "poor man's private equity funds."[5] The majority of companies pursuing SPACs do so on the Nasdaq or New York Stock Exchange in the US, although other exchanges, such as the Euronext Amsterdam, Singapore Exchange, and Hong Kong Stock Exchange have also overseen a small volume of SPAC deals.[6]
Despite the popularity and growth in the number of SPACs, academic analysis shows investor returns on SPAC companies post-merger are almost uniformly negative, although investors in SPACs and merged companies may earn excess returns immediately after the merger.[7] Proliferation of SPACs usually accelerates around periods of economic bubbles, such as the "everything bubble" between 2020 and 2021.[8]
History
Blind-pool stock offerings existed in the 1980's. Their rejuvenation began in the early 1990's with investment bank GKN Securities and its founder David Nussbaum, who was later fined by the National Association of Securities Dealers for overcharging investors but went on to found EarlyBirdCapital in 2003.[9]
After the 1980's the federal government increased regulation around SPAC's, requiring that at merger, if an investor does not like the acquired company, the investor can opt out and get their money (plus interest) refunded, because, they were effectively blank check companies, which, as NPR put it, "were so infamous for scamming investors that a federal law was passed to crack down on them."
Characteristics
Mechanics
SPACs generally trade as units or as separate common shares and warrants on the Nasdaq and New York Stock Exchange (as of 2008) once the public offering has been declared effective by the SEC, distinguishing the SPAC from a blank check company formed under SEC Rule 419.[10]
By market convention, 85% to 100% of the proceeds raised in the IPO for the SPAC are held in trust to be used at a later date for the merger or acquisition.[11]
In addition, the target of the acquisition must have a fair market value that is equal to at least 80% of the SPAC's net assets at the time of acquisition. Previous SPAC structures required a positive shareholder vote by 80% of the SPAC's public shareholders for the transaction to be consummated.[12]
Statistics
According to an industry study published in January 2019, from 2004 through 2018, approximately $49.14 billion was raised across 332 SPAC IPOs in the US. In that period, 2018 was the largest year for SPAC issuance since 2007, with 46 SPAC IPOs raising approximately $10.74 billion. SPACs seeking an acquisition in the energy sector raised $1.4bn in 2018, after raising a record $3.9bn in 2017. NASDAQ was the most common listing exchange for SPACs in 2018, with 34 SPACs raising $6.4bn. GS Acquisition Holdings Corp. and Churchill Capital Corp. raised the largest SPACs of 2018, with $690mm each in IPO proceeds.[23] In 2019, 59 SPAC IPO's raised $13.6 billion.[24] Nearly 250 SPACs raised more than $83 billion in 2020. In the first month of 2021 there were 75 SPACs.[25]
From 2009 to 2024, the landscape of SPAC IPOs has seen considerable variance. In 2009, a single SPAC IPO garnered $36 million, marking a modest start. Over the years, activity increased, peaking in 2021 with 613 IPOs that collectively raised around $162 billion, averaging $265 million per IPO.
In 2022, the SPAC market shrank significantly, with only 86 SPAC IPOs compared to 613 in 2021, reflecting more challenging economic conditions and increased regulatory scrutiny. Total funds raised dropped to $13.4 billion from $162.5 billion in 2021, and the average IPO size decreased from $265.1 million to $156.1 million.
Regulation
In the US the SPAC public offering structure is governed by the Securities and Exchange Commission (SEC). A public offering for a SPAC is typically filed with the SEC under an S-1 registration statement (or an F-1 for a foreign private issuer) and is classified by the SEC under SIC code 6770 – Blank Checks. Full disclosure of the SPAC structure, target industries or geographic regions, management team biographies, share ownership, potential conflicts of interest and risk factors are standard material covered in the S-1 registration statement. It is believed that the SEC has studied SPACs to determine whether they require special regulations to ensure that these vehicles are not abused as blind pool trusts and blank-check corporations have been over the years. Many believe that SPACs do have corporate governance mechanisms in place to protect shareholders. SPACs listed on the American Stock Exchange are required to be Sarbanes–Oxley compliant at the time of the offering, including such mandatory requirements as a majority of the board of directors being independent, and having audit and compensation committees.
See also
- Capital formation
- Direct listing
- Initial public offering
- Reverse IPO
- Special-purpose entity
Bibliography
External links
References
- Camila Domonoske. The Spectacular Rise Of SPACs: The Backwards IPO That's Taking Over Wall Street NPR, 2020-12-29^
- Kristin Broughton, Mark Maurer. Why Finance Executives Choose SPACs: A Guide to the IPO Rival The Wall Street Journal, September 22, 2020, retrieved 22 February 2021^
- US SEC set to require more transparency from 'blank check' companies