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What is a SPAC?

 


For those of my readers not into financial-world fads, here is a new acronym from that domain.

A SPAC  has nothing at all to do with a TROWEL. It is a Special Purpose Acquisition Company.

What does that mean? You ask, ah ...

A SPAC is a company with no commercial operations, one that exists for the purpose of acquiring another company. More specifically, it is a company with a listing on an exchange that exists for the purpose of acquiring another company that is not and would like to be on that exchange. 

Consider a simple example. I invent a new type of shoe. I believe lots of people will rush to buy it. I create the company "Faille Footware."  Now, for a lot of reasons I won't get into, I might want Faille Footware (FFW) to have a listing (NYSE: FFW). But that is a difficult and lengthy process. What's the quick and easy way? To have somebody else who already IS on the NYSE buy me up. Then the new company can change its name to Faille Footware and adopt an appropriate ticker symbol.  

I was just looking at it from the acquired company's point of view. But what about from the SPAC's point of view. Some finance entrepreneur evidently went to the trouble that I'm trying to avoid, and got a public listing. She got it, and raised a lot of money in the process (you can't acquire something good without something green, amirite?). On behalf of her investors, her one job is to find a promising company. Maybe she raised money specifically on the idea that she would be looking for a footwear company upon whom to bestow the precious listing, and perhaps she has made an elaborate presentation, several times, on a road trip, about the great opportunity in footware. 

Anyway, THAT is what a SPAC is. Why the rise of SPACs is an especially important development and what the costs and risks of it are, I hope to share with you another time. 

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