Guide · Markets
What Is a SPAC? The Shortcut to Going Public
A SPAC raises money first and finds a company to buy later — a structure that flips the usual IPO process on its head.
A SPAC (Special Purpose Acquisition Company) is a shell company with no actual business operations, created solely to raise money through its own IPO and then use that cash to acquire a private company, effectively taking it public without that company going through a traditional IPO process.
The typical sequence: a SPAC's sponsors raise capital and list SPAC shares (usually priced around $10) on an exchange, with the raised money held in trust while the sponsors search for a target company to acquire, typically within a set window of one to two years. Once a target is identified and shareholders approve, the SPAC merges with the private company, which then trades publicly under its own name.
The appeal for the private company being acquired is speed and certainty — a SPAC merger can take months rather than the year-plus a traditional IPO roadshow typically requires, and the valuation is negotiated directly rather than discovered through the more unpredictable IPO bookbuilding process.
The appeal for investors is more mixed: SPAC shareholders can redeem their shares for the original trust value if they don't like the proposed target, but historically many SPAC mergers have underperformed the market afterward, and a sponsor's incentives (they typically profit from completing any deal, not necessarily a good one) don't always align cleanly with shareholders'.