If you were offered a chance to invest in a company that would never make any money from operations, you’d probably give it a pass. But that might be a big mistake — at least, if the company in question is a SPAC.
If you aren’t familiar, special purpose acquisition companies (SPACs) are essentially an inversion of the traditional initial public offering (IPO) process, where companies issue shares on the public market to raise capital. With a SPAC, investors make a shell company with a nest egg of cash, then take it public to raise even more. Next, the SPAC merges with a private company that doesn’t want to go through the hassle of assembling the paperwork for an IPO, thereby making a new and publicly traded entity. If everything goes according to plan, the original investors get paid handsomely, and the SPAC’s shareholders get equity in the new and cash-rich entity.
SPACs aren’t a new concept, but they’re becoming quite popular, and they can be very lucrative, even for retail investors. Let’s take a look at two SPACs that might reward their shareholders in 2021.