SPAC

DEFINITION

A Special Purpose Acquisition Company raises capital via an IPO with only a stated purpose to acquire a private operating company within 18-24 months. SPAC IPO shares come with redemption rights — investors can get their money back at the deal vote. When the SPAC announces a target, an S-4 is filed describing the merger (the 'de-SPAC' transaction). The 2024 SEC SPAC rules tightened projection disclosures and underwriter liability.

WHY IT MATTERS FOR RETAIL INVESTORS

SPACs let private companies go public faster than a traditional S-1 IPO, often with optimistic projections that would not survive an S-1 review. The lesson from the 2021-2022 cycle: post-merger SPAC stocks have historically underperformed traditional IPOs by a wide margin. Always read the S-4 carefully, check the sponsor's incentive structure (sponsor shares ≈ 20% near-free), and notice redemption rates — high redemptions are a warning.

RELATED TERMS

• Form S-4
• Form S-1
• IPO