Special-purpose acquisition company

History of private equity and venture capital
Early history
(origins of modern private equity)
The 1980s
(leveraged buyout boom)
The 1990s
(leveraged buyout and the venture capital bubble)
The 2000s
(dot-com bubble to the credit crunch)

Since the 1990s, SPACs have existed in the technology, healthcare, logistics, media, retail and telecommunications industries. Their history began with investment bank GKN Securities, specifically founders David Nussbaum, Roger Gladstone and Robert Gladstone, who later founded EarlyBirdCapital with Steve Levine and David Miller (who is currently managing partner of Graubard Miller law firm) and who developed the template.

However, since 2003, when SPACs experienced their most recent resurgence, SPAC public offerings have sprung up in a myriad of industries such as the public sector, mainly looking to consummate deals in homeland security and government contracting markets, consumer goods, energy, energy & construction, financial services, services, media, sports & entertainment and in high growth emerging markets such as China and India.

In 2003, the lack of opportunities for mid-market public investors to "back" experienced managers, combined with the trend of upsizing private equity funds, pushed entrepreneurs to directly seek alternative means of securing equity capital and growth financing. At the same time, the rapid growth of hedge funds and assets under management and the lack of compelling returns available in traditional asset classes led institutional investors to popularize the SPAC structure given its relatively attractive risk reward profile. SEC governance of the SPAC structure and the increased involvement of the bulge bracket investment banking firms such as Citigroup, Merrill Lynch and Deutsche Bank has further served to legitimize this product and perhaps a greater sense that this technique will be useful over the long term.

SPACs are forming in many different industries and are also being used for companies that wish to go public but otherwise cannot. They are also used in areas where financing is scarce. Some SPACs go public with a target industry in mind while others do not have preset criteria. With SPACs, investors are betting on management's ability to succeed.

SPACs compete directly with the private equity groups and strategic buyers for acquisition candidates. The tightening of competition between these three groups could result in a bid for the best company and possibly increase valuations.

Graph-diagram of the number of IPO companies used SPAC to enter the stock exchange

SPAC IPOs have seen resurgent interest since 2014, with increasing amounts of capital flowing into the concept:[12]

• 2014: $1.8bn across 12 SPAC IPOs
• 2015: $3.9bn across 20 SPAC IPOs
• 2016: $3.5bn across 13 SPAC IPOs
• 2017: $10.1bn across 34 SPAC IPOs
• 2018: $10.7bn across 46 SPAC IPOs
• 2019: $13.6bn across 59 SPAC IPOs
• 2020: $83.3bn across 248 SPAC IPOs

The success of SPACs in building equity value for their shareholders has drawn interest from investors such as Bill Ackman who has backed three SPACs to date including the SPAC that took Burger King public.[13][14][15][16]

Private Equity funds TPG, Riverstone, THL and others have sponsored SPACs in recent years as their popularity has increased.

By virtue of being public companies, SPAC may be targeted by short sellers or "Greenmail" investors. Typically, short sellers have not been very active in SPACs since the stock price remains fairly steady unless there is a transaction announced. Most SPAC shares are held by large hedge funds and institutional investors who do not actively trade the stock until after the closure of the initial business combination. Recent SPACs incorporated provisions that prevent public shareholders, acting alone or in concert, from exercising redemption rights in excess of 20% shareholding, they can't influence executive management.

An IPO through a SPAC is similar to a standard reverse merger. However, unlike standard reverse mergers, SPACs come with a clean public shell company, better economics for the management teams and sponsors, certainty of financing/growth capital in place - except in the case where shareholders do not approve an acquisition, a built-in institutional investor base and an experienced management team. SPACs are essentially set up with a clean slate where the management team searches for a target to acquire. This is contrary to pre-existing companies going public in standard reverse mergers.

SPACs typically raise more money than standard reverse mergers at the time of their IPO. The average SPAC IPO in 2018 raised approximately $234 million compared to $5.24 million raised through reverse mergers in the months immediately preceding and following the completion of their IPOs. SPACs also raise money faster than private equity funds. The liquidity of SPACs also attracts more investors as they are offered in the open market.

Hedge funds and investment banks are very interested in SPACs because the risk factors seem to be lower than standard reverse mergers. SPACs allow the targeted company's management to continue running the business, sit on the board of directors and benefit from future growth or upside as the business continues to expand and grow with the public company structure and access to expansion capital. The management team members of the SPAC typically take seats on the board of directors and continue to add value to the firm as advisors or liaisons to the company's investors. After the completion of a transaction, the company usually retains the target name and registers to trade on the NASDAQ or the New York Stock Exchange.

In the United States, 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 topics included 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 like 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 audit and compensation committees.

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 United States. 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.[17] In 2019, 59 SPAC IPO's raised $13.6 billion.[12]

• Capital formation
• Initial Public Offering
• Reverse IPO
• Direct Listing

• Investopedia
• Blank Check Company