Special Purpose Acquisition Company (SPAC)
A shell company that raises capital through an IPO with the sole purpose of merging with or acquiring a private company to take it public.
What is SPAC?
A Special Purpose Acquisition Company (SPAC) — also called a 'blank check company' — is a publicly listed shell company that raises money through an IPO without having any current business operations. The funds raised are held in a trust while the SPAC's management team searches for a private company to acquire or merge with, typically within 18–24 months. When a target is identified and shareholders vote to approve the merger, the private company becomes publicly traded without going through a traditional IPO. If no deal is completed within the deadline, the trust funds are returned to investors. SPACs surged in popularity during 2020–2021 as a faster, less regulatory-intensive alternative to traditional IPOs. However, studies have shown that SPACs often underperform the market after completing their mergers, and the SEC increased scrutiny of SPAC disclosures and accounting practices in 2022–2023.
Example
Lucid Motors, the electric vehicle company, went public in 2021 by merging with Churchill Capital Corp IV, a SPAC. At the time of the merger announcement, the deal valued Lucid at approximately $24 billion, making it one of the largest SPAC transactions. Lucid's stock surged over 400% in the weeks following the announcement before declining sharply — illustrating both the speculative excitement and the post-merger performance challenges common in SPAC deals.