A lot happened in 2020, to say the least. But it was also the year of the special purpose acquisition company (or SPAC), also known as a “blank check company.” These are holding companies that go public with essentially no business attached. Their sole purpose is to raise money through an initial public offering in order to eventually purchase a private company and essentially take it public.
The capital is raised through shares and warrants, and SPACs typically only have a certain amount of time (usually two years) to buy a company, or they have to return the capital to shareholders.
One thing investors in SPACs should keep in mind is that if the SPAC fails to merge with a private company, it will return investors’ money, but only the amount that shares were initially offered at. So, if a SPAC goes public at $10 per share and you buy shares later on for a premium at $13 per share, you would lose $3 for each share of the SPAC you bought if it doesn’t make a deal happen.