In a SPAC deal, a special-purpose acquisition company (SPAC) combines with a privately held company in order to give the private company status as a public company on an exchange such as Nasdaq or NYSE. The process typically begins with a SPAC raising capital via a public offering of its own shares. The proceeds from that offering are then used to acquire a private company, often a venture-backed startup. A SPAC merger is sometimes called a blank-check merger.
A SPAC merger’s main advantage compared to a traditional IPO is that it enables a company to go public faster and at lower cost. However, SPACs are generally considered to be riskier for investors than an IPO, and regulatory requirements can be more complex.
SPAC mergers became popular in 2020 and 2021, with companies including WeWork, 23andMe, Faraday Future, Clover Health, Metromile and BuzzFeed taking that route to the public markets. SPAC deals were especially popular as a way to take capital-intensive businesses such as electric-vehicle startups public faster, and with fewer constraints, than via the traditional IPO process. However, many companies that went public via SPAC in recent years have seen their stock performance struggle on the public markets.
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