A special purpose acquisition company (SPAC) is a blank check company that becomes incorporated and goes public with the goal of merging with or obtaining an undetermined company with the earnings from an initial public offering (IPO). This procedure is often labelled as a "reverse IPO," as the business gathers investor capital before getting, merging, or even choosing a target company. Because there aren't any assets or operations at the time of investment, investors are essentially wagering on the prospective future performance of a management team.
The optionality embedded within a SPAC enables public investors to enter into an an occasionally lucrative and unique investment vehicle that seems to have limited downside risk. Nonetheless, SPACs truly present numerous dangers that may not be self evident to all but the sophisticated investor. With a total of 228 SPACs raising $35.8 billion of capital since 2003, this increasingly popular investment vehicle warrants further discussion of these fundamental risks.
PUBLICATION DATE: December 01, 2009 PRODUCT #: KEL455-HCB-ENG
This is just an excerpt. This case is about FINANCE & ACCOUNTING
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