19 February 2021
Transactions by special purpose acquisition companies, or SPACs, exploded in 2020, resulting in a 320% increase in the number of SPAC initial public offerings (IPOs) compared to 2019. SPACs have been around for 15 years and now are established as a legitimate alternative to a traditional merger or IPO. This is due in part to an evolution of the SPAC vehicle, which now offers enhanced investor protections and positions sophisticated managers as “sponsor teams” that guide the company through both the SPAC IPO and the de-SPAC process, as further described below. SPAC prevalence is set to continue through 2021, with a significant number of both SPAC and de-SPAC transactions already in the pipeline.
A SPAC is a public, NYSE- or Nasdaq-listed acquisition vehicle through which a sponsor team raises a pool of cash in an IPO and places that cash in a trust, to be used solely to acquire an operating target company. The SPAC is required by its charter to complete that initial business combination — or “de-SPAC” transaction — typically within 24 months, or liquidate and return the gross proceeds raised in the IPO to the public shareholders.
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For further information, please contact:
C. Michael Chitwood., Partner, Skadden
michael.chitwood@skadden.com
