SPACtacular
2020 was undoubtedly the year of the SPAC. SPAC stands for Special Purpose Acquisition Company. The purpose of these companies is for private companies to gain a stock market listing via a shell company rather than the rigours of the normal Initial Public Offering (IPO) process.
There has been a huge boom in IPOs of SPACs. In 2020 there was over $80bn raised for these ‘blank cheque’ vehicles. Investors in the IPO often have no idea what if any actual deals the SPAC will be able to close once the listing is complete. The 2020 issuance number was over a 5 fold increase from the 2019 SPAC IPO total raised. So far in 2021, even Jay-Z has got on board the SPAC express which has done nearly $20bn of issuance in less than a month!
Source: spacinisder.com
SPAC target companies have been focussed in a small number of potential high growth yet largely unestablished sectors but the most popular by far has been Automotive tech. The list of famous SPAC companies includes DraftKings, Virgin Galactic and Nikola.
Huge issuance, limited regulation and transparency combined with high costs mean it is an area that should be addressed with extreme caution!