facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
What is a SPAC? Thumbnail

What is a SPAC?

If you watch the financial news, you’ve probably heard the word “SPAC” quite a bit over the last year or so.  While SPACs are popular investment and trading vehicles right now, many people don’t know what they truly are.   

SPAC (Special Purpose Acquisition Company) are also called “blank check” companies because they have no business operations.  These are businesses formed by investors, sponsors and even celebrities that have no operation of their own.  Examples of celebrities who have jumped on the SPAC bandwagon include Shaquille O’Neil, Colin Kaepernick and A. Rod.  

These companies collect money from investors with the intention of using those proceeds, at some point in the future, to purchase a private company and take it public so that it trades on an exchange.  The blank check moniker comes from the fact that investors are putting money into these companies and trusting that those in charge will invest the money wisely.  Management essentially has a blank check from their investors to purchase whatever they choose, whenever they choose. 

Traditionally, investment banking firms perform the service of taking companies public.  However, this can be a lengthy and expensive process. Using a SPAC that has an experienced partner can greatly reduce the time and cost of listing on a stock exchange.  

SPACs have become popular in the last decade, and even more so in 2020 and 2021.  In 2019 more than $13 billion dollars worth of deals listed on the stock market via SPACs and through August 2020, the number was approaching $21 billion dollars. (according to Investopedia )

Many, but not all, popular SPACs are in the electric car business and hope to become the next Tesla.  Some SPACs that have received the most attention from investors include Lordstown Motors (an electric car company), Pershing Square Tontine Holdings (which has not publicly specified their target industry),  Churchill Capital which recently announced a merger with Lucid Motors (another electric car company), and Starboard Value which has announced that they will take Cyxtera Technologies public.

It is easy to get in over your head with SPACs.  These investments have become popular amongst traders, but they tend to be very volatile.  Check out this chart of Lordstown Motors.  

Before investing, do your homework, understand what you’re investing in and feel free to give our team a call if you need help.

Securities offered through IFP Securities, LLC, d/b/a Independent Financial Partners (IFP), member FINRA/SIPC. Investment advice offered through IFP Advisors, LLC, d/b/a Independent Financial Partners (IFP), a Registered Investment Adviser. IFP and Callesen Wealth Management are not affiliated. Past performance is no guarantee of future returns. Investors cannot invest directly in an index. Diversification and asset allocation do not guarantee returns or protect against losses. The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities LLC, dba Independent Financial Partners (IFP), and it advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.

Check the background of this firm/advisor on FINRA’s BrokerCheck.