What’s the Deal?

Special purpose acquisition companies (“SPACs”), commonly referred to as “blank check companies,” are public shell companies that use their initial public offering (“IPO”) proceeds in order to acquire private companies within a specific timeframe (this acquisition is commonly referred to as an “initial business combination” and the merger or combination transaction is often referred to as the “de-SPACing transaction”). Although SPACs have existed for decades, merging into a SPAC has recently become an attractive alternative for private companies in lieu of undertaking traditional IPOs. Today, SPACs have higher quality sponsors, more blue-chip investors, bulge bracket underwriters, and better sponsorinvestor alignment structures than the past. These factors have contributed to making SPACs more mainstream investment vehicles, and have now accounted for approximately 20% of IPO proceeds in 2019 and 38% of IPO proceeds in 2020 year-to-date. SPACs have raised approximately $19 billion through July 2020, which is much higher than 2019’s record of approximately $13.5 billion.