Special Purpose Acquisition Company - SPAC
Also known as a "targeted acquisition company (TAC)".
You can think of a SPAC as a kind of reverse IPO. The SPAC raises money to go public first, then looks for a private company to buy - usually in the high-tech sector. Here's how a deal with a SPAC might work: a group of investors wants to buy a company that makes space widgets. They don't know what company, just that it has to be in the new space widget market. The investors go to an investment bank that has been raising funds from the public for the SPAC's management team. The investment bank takes a fee (often around 10%), and the management goes out looking for companies over the next two years. If things go well, management buys a company with cash and/or shares, takes 20% of the profits that are (hopefully) generated, and the shareholders get ownership in a new company.
Critics say that SPACs are nothing more than a slick way for investment banks and management to collect huge fees with most of the risk falling on investors. Proponents say that SPACs serve an important role in bringing new technology to the market.
Investment dictionary. Academic. 2012.
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