How does SPAC work?

by Mads Moeller Marketing manager

A SPAC (special purpose acquisition companies) is a company that goes public through an IPO (initial public offering) without having a full business operation in place. It is a type of "blank check business" or one that is in its development phase and exists for the purpose of merging with or acquiring another business.

The life cycle of a SPAC looks very different to the one at a traditional company. Most companies are formed with a specific product or service as the focus and put in hard work to prove the value of the business model. When the company does this, it may undergo an IPO to help raise capital and scale its activities.

As a shell company, a SPAC exists only on paper and will undergo an IPO without a product or service. It raises capital by selling public shares for the purpose of either merging or acquiring another company, known as its original business combination or reverse merger.

When a SPAC becomes public, all the capital it creates goes into a trust account. The money remains in trust, until the SPAC completes its original business combination, or it is liquidated and disbursed the funds to the shareholders. If the combination goes through, the shareholders can choose to either remain a shareholder in the new combined company or redeem their shares.

One of the crucial advantages with SPAC is its potential to rethink stock listings and in general, the way companies raises capital.

Many experts and professionals in the financial investment sector calls SPAC an exciting investment model with favorable future prospects. Among them are OMNIA Global founder and CEO Daniel Hansen.

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