They came out of nowhere to dominate the market for initial public offerings in 2020. Special purpose acquisition companies, also known as blank checks, are empty corporate shells whose sponsors raise money from investors and then look to buy into another business, usually a private one. A SPAC’s most valuable asset, besides all that cash from investors, is arguably its stock market listing. The company it invests in instantly becomes a public one, without many of the hassles that go along with a traditional IPO.
Another reason SPACs were big this year: The market volatility that followed the Covid-19 lockdowns made the spring and summer a scary time to try to sell new stock. SPACs offer businesses a surer deal—just take this money we’ve already raised. But why would someone buy shares in a company that doesn’t even have a business yet? In a world of low interest rates and high valuations on other stocks, some see SPACs as a reasonable place to park money for a while. A SPAC is typically structured so you can get money out if you don’t like the deal it makes, and there’s a chance you’ll be getting in early on the next hot company.