by The hottest thing in finance is four letters long. Former NBA star Shaquille ONeal has one. So does former House Speaker Paul Ryan. Same goes for silver-haired hedge-fund billionaire William Ackman.
Its called a SPAC, and increasingly it is the favorite source of financing for private companies looking to go public. Richard Bransons space-exploration firm Virgin Galactic Holdings Inc. went public through a SPAC in 2019, and sports-wagering firm DraftKings Inc. did so last year. Nearly 300 SPACs are now seeking deals, armed with about $90 billion in cash. And more are rolling out at a furious clipso far this year, an average of five new SPACs launched each business day.
If you dont have your own SPAC, youre nobody, said Peter Atwater, founder of research firm Financial Insyghts.
SPACswhich stands for special-purpose acquisition companiesare essentially big pools of cash listed on an exchange. Their purpose is to find a private company, buy it and take it public quickly. Some on Wall Street call them blank-check companies because the investors backing the SPAC put up their money months before an acquisition target is identified, trusting the people running the show to find a good deal.
These deals are generating a lot of interest because they produce big paydays for their creators, make it easier for startups in hot industries such as electric vehicles to capitalize on a frothy run-up in the stock market and offer everyday investors a new path to a hot stock. When a SPAC buys a firm, it merges with it in a sort of accelerated IPO processa so-called reverse mergerwhile bypassing the normal scrutiny an IPO receives.
