In today’s environment, special purpose acquisition companies for big investors are getting bigger and bolder.
Investors are putting a lot of money into new businesses—even if they don’t know what they actually are yet.
Blank-check or special purpose acquisition companies (SPACs) are all the rage on Wall Street. With no business operations of their own, they raise capital through an initial public offering (IPO) with the sole purpose of acquiring or merging with a private company that has yet to be disclosed. With the SPAC providing expertise and technical resources, the new venture can avoid the cumbersome process of a traditional IPO and go public in as little as eight weeks.
SPACs are nothing new; they’ve been around in various forms since the 1980s. But in today’s environment, these “blind dates” for big investors are getting bigger and bolder. Recent examples include venture capitalist Chamath Palihapitiya’s firm Social Capital Hedosophia, which helped space tourism company Virgin Galactic list on the New York Stock Exchange last year; and VectoIQ, which merged with Tesla-challenger Nikola Corporation in March to form a $3.3 billion company. In July, hedge fund manager Bill Ackman launched his own SPAC, Pershing Square Tontine Holdings, the largest ever, with a war chest of $4 billion.
That said, the SPAC craze, coming at a time of extreme volatility in the markets, has yielded bittersweet results. Some vehicles have seen double–and even triple-digit gains while others arrived too late to the party and have suffered crushing losses.
In the long run, of course, the success of SPACs won’t hinge on how they went public, but on tried and true ingredients: a winning business strategy and leadership.