This year, a word that has entered the vocabulary of many investors is SPAC, short for Special Purpose Acquisition Company. Yet, for some, what a SPAC exactly is and for what it is suitable, remains a mystery.

 

What exactly are SPACs?

I find it helpful to understand SPACs by breaking them down into bullet points:

  • SPACs are shell companies with no business operations to speak of that are listed on stock exchanges.
  • SPACs are usually sponsored by high-profile financial managers, such as former fortune500 CEOs and investment bankers.
  • The purpose of a SPAC is to raise capital via its Initial Public Offering (IPO), which is then used to acquire (or merge with) an unlisted company.
  • SPACs have two years from when they IPO to complete an acquisition or merger. 
  • A SPAC’s shareholders have to vote in favour of a proposed acquisition before it is finalised. After the merger of the two companies, the new entity is considered de-SPAC-ed

 

What are SPACs advantages?

The advantages SPAC’s provide are twofold. One advantage is for the SPAC sponsor, and the other is for the owners of the unlisted companies with which the SPAC mergers.

  • Regarding the SPAC sponsor, their advantage is the significant stake they acquire in the SPAC (typically 20%) and the right to purchase more shares at a set price in the future (known as warrants).
  • The appeal for unlisted companies to list on a stock exchange via a SPAC merger is its ease compared to a traditional IPO route. By merging with a SPAC, an unlisted company can forgo the lengthy and intrusive examinations and paperwork typically required to IPO.

 

Understanding how popular SPACs are in2021

Since emerging in the 1990s, SPACs have primarily remained a fringe financial product. That is, until last year when their popularity exploded in the US. In 2020, SPACs raised more than US $82 billion. Not to be outdone, 2021 eclipsed this value by April and has since gone on to raise more than US $120 billion. In contrast, SPACs raised a comparatively tiny US $13.6 billion in 2019.

According to Skadden, the rise in SPACs is due to recently enhanced investor protections and famous financial figures associating themselves with the investment vehicle. Names that have been associated with SPACs in the past couple of years include Bill Gates and Richard Branson, as either SPAC sponsors (Branson) or stakeholders in companies that have merged with a SPAC (Gates).

Risk Warning: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money you cannot afford to lose. You should make yourself aware of all the risks associated with foreign exchange trading and seek advice from an independent financial adviser if you have any questions or concerns as to how a loss would affect your lifestyle.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD remains vulnerable near 1.1600 amid firmer dollar

EUR/USD is hovering around 1.1600, on the defensive amid a broadly stronger US dollar. Markets cheer US-Sino talks and stimulus progress despite looming inflation fears. The Fed-ECB monetary policy divergence weighs down on the euro. US Consumer Confidence data awaited.

EUR/USD News

GBP/USD hovers around 1.3750, Brexit talks in London eyed

GBP/USD is trading above 1.3750, struggling for a clear direction after Monday’s rebound. Market sentiment improves on stimulus hopes, US-Sino talks but the dollar remains firmer. UK’s Frost offers EU Dec deadline to solve the row over the NI proposal. All eyes on the Brexit talks.

GBP/USD News

XAU/USD flirts with $1,800 amid stronger USD, risk-on mood

Gold snaps a five-day uptrend, refreshes intraday low of late. Market sentiment dwindles amid pre-GDP caution, light calendar. US Treasury yields rebound, add strength to the greenback.

Gold News

Traders book profits from Shiba Inu to push Dogecoin to $0.34

Dogecoin price could see some incoming speculative money from profit-taking in Shiba Inu A bullish close above the Cloud on the daily chart indicates future upswing likely. The outperformance of Shiba Inu is likely as Dogecoin lags the majority of the market.

Read more

Conference Board Consumer Confidence October Preview: Watch what we do... Premium

Confidence expected to slip to 108.3 from 109.3 in September. Michigan Consumer Sentiment eroded slightly in October. Sentiment seems divorced from labor market and Retail Sales. Federal Reserve taper will not hinge on a happy US consumer.

Read more

Majors

Cryptocurrencies

Signatures