By James Inness and Anna Ngo

Special purpose acquisition companies, or SPACs, are companies that are incorporated for the purpose of making one or more strategic acquisitions. SPACs are also referred to as “blank check” companies or “cash shells”, which seek to raise capital by listing shares on a stock exchange. Each SPAC has its own investment criteria and focus, such as a specific industry. Alternatively, it may operate under the banner of a more generic acquisition mandate, which guides its potential acquisition strategy.

At the time of IPO, the SPAC is empty – it has no business operations or tangible assets. However, it will have an experienced management team, which usually includes the sponsors or founders, and an investment criteria, which the management team will seek to meet by identifying attractive targets for acquisition by, or merger with, the SPAC within 18-24 months from IPO. A failure to execute an acquisition within the timeframe will generally lead to the liquidation of the SPAC and a return of investment to the public shareholders.