What are SPACs and why are they popular?

Valuation: Public companies trade at higher multiples than private companies, so SPACs offer an opportunity for higher valuation. Cost: Unlike traditional IPOs that are very expensive to execute, SPACs typically pay for most of the costs, saving a significant amount of money for the company.

What is the point of SPAC?

A special purpose acquisition company (SPAC) is a company that has no commercial operations and is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring or merging with an existing company.

Are SPACs good or bad?

SPACs are great for those running the SPAC and terrible for the investors. This is a dangerous and often money-losing place in which to invest.

Why is SPAC so hot?

Bulge bracket banks have also formalized their SPAC business. Why are they hot now? The pandemic has raised volatility levels, making IPOs riskier and bringing that market to something of a crawl. At the same time, the U.S. Federal Reserve had pumped extra cash into the market.

Is Virgin Galactic a SPAC?

Rocket Lab’s SPAC merger was just approved, for instance, and it’ll begin trading on Wednesday, and Richard Branson’s other space company, Virgin Galactic, was the first big SPAC deal that ushered in the craze. …

Can anyone invest in a SPAC?

Investors can invest in SPACs either by selecting individual securities or by investing in a SPAC ETF. Selecting individual SPACs allows investors to focus on the opportunities that seem most promising while also having some downside protection due to the structure of SPACs.

Is SPAC a bubble?

The SPAC explosion SPACs have been around since the 1990s, but they exploded in popularity in 2020 and early 2021. Yet despite this eye-catching activity, many would say the bubble in SPACs has burst recently.

What are SPACs and why do they matter?

First of all, what are they, and second of all, why? “SPAC” stands for special-purpose acquisition company, which is kind of an obtuse way of saying “a mountain of cash that exists for a merger”; it is also sometimes called a “blank-check” company, usually in articles like this one that explain what SPACs are.

Will private equity firms become more involved in SPACs?

This trend will likely continue as a growing number of major private equity (PE) firms, venture funds and operators form more SPACs. SPACs are “blank check” companies created solely to raise capital through an IPO in order to merge with private companies.

Why are companies considering SPACs instead of IPOs?

Increasingly, companies across all sectors are considering mergers with special purpose acquisition companies (also known as SPACs), rather than a traditional IPO, to achieve these goals. This trend will likely continue as a growing number of major private equity (PE) firms, venture funds and operators form more SPACs.

How many SPACs have been formed in 2020?

In 2020, as of the beginning of August, more than 50 SPACs have been formed in the U.S. which have raised some $21.5 billion. A special purpose acquisition company is formed to raise money through an initial public offering to buy another company.