What is a SPAC?

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A Special Purpose Acquisition Company (SPAC) is a shell company,
with no business operations itself, that goes public in order to someday
acquire an operating company. When a SPAC IPOs, its Sponsor—who
first sets up and manages the SPAC—and other early investors receive
both shares and convertible warrants. SPAC shares typically start
trading at a nominal $10 each and tend to hang around that price level
until the SPAC’s merger target is announced, unless speculation
runs rampant.

From the perspective of a company wanting to go public, SPACs are
perceived to offer a shorter, faster ramp to public investors than a
traditional IPO. For SPAC Sponsors and IPO investors, the convertible
warrants are a potential “sweetener” not offered in traditional IPOs.
On the flip side, investors in the secondary market face a distinct
disadvantage when owning pre-merger SPACs—their interest is likely to
be diluted by IPO investors who return their shares (the SPAC is required
to buy them out, if requested) and by PIPEs, or private investments in
public equity, which are relied upon to help SPACs close their mergers
with operating companies.