There are several things that you should know before you consider SPACs as an investment strategy. Although they are simpler to set up than IPOs, they carry a greater risk than traditional IPOs. While they offer a value proposition that is highly attractive, they are also subject to liquidation if they fail to merge with a target company. As a result, it is essential to carry out careful SPAC research to avoid being a victim of the SPAC scam.
SPACs are easy to set up
One advantage of SPACs is that they are easy to set up. A SPAC is a corporation that is created to make acquisitions. The shareholders of a SPAC do not need to invest large amounts of money to set up the corporation. The process is simple, and the shareholders of both companies can be consulted for assistance if they are confused. A SPAC must be a public company to be considered an “exchange” for stocks.
They are riskier than traditional IPOs
In the United States, SPACs comprised nearly a quarter of all IPOs in 2007 and raised $10 billion in total. As their popularity continues to grow, SPACs have received some attention in the financial press. However, little research has been done to determine how SPACs compare with traditional IPOs. This study will document some of the key characteristics of SPACs, as well as compare them to traditional IPOs.
They offer attractive value proposition
SPACs have long been a complex model for attracting investors, and that’s no different today. However, a combination of a deteriorating market and a lack of fundamental information about SPACs have left them with a less than desirable value proposition. The good news is that a new strategy is emerging: SPAC research. In addition to conducting due diligence on SPACs, investors can also do so on the industry in which they operate.
They are liquidated if they don’t merge with a target company
SPACs are often public companies with a unique structure. The SPAC is already public and has already received approval from the SEC. If the target company is not already public, it will have to go through the same process. While an SPAC merger is not necessarily less regulatory than a traditional IPO, it is less time consuming. Once the SPAC has acquired the target, the ticker will change to the target company’s name and begin trading like a traditional public company. In some cases, the acquired company will even merge with the SPAC before it actually becomes public. For instance, in January 2019, Social Capital’s IPOA SPAC acquired Virgin Galactic, and its shares stopped trading on the day after the deal. However, SPACs also change their ticker to SPCE, which will then allow its new
They are a “blank check” company
SPAC is an acronym for “short-term preferred stock,” and it is a common investment strategy for entrepreneurs. Unlike an IPO, an SPAC may acquire a company in any industry. In fact, many SPACs highlight a target industry before launching their IPO. These companies can then be acquired for a relatively low price. The sponsors of the SPAC have two years to announce the acquisition before forfeiting their shareholders’ money.
They offer right to redeem before merger
SPAC research provides investors with the opportunity to exercise their right to redeem before the merger. A right to redeem is also known as a money-back guarantee. British Airways and American Airlines determine the price of each share, and investors generally receive $10 per share plus small interest earnings. The SPAC’s share price is based on a formula that allows it to be easily redeemed prior to its merger. During the merger, the target company must file a Form 8-K, a kind of SEC filing equivalent to a Form 10 filing, with the Securities and Exchange Commission within four business days of closing.