How Does a SPAC Work?
A sponsor creates the SPAC, takes it public, and places the IPO proceeds in a trust. The sponsor then has a set window — typically 18 to 24 months — to identify and complete a merger with a private company. If no deal closes in time, the SPAC liquidates and returns funds to shareholders.
What Are the Risks of Investing in a SPAC?
How Do SPACs Compare to Traditional IPOs?
SPACs offer faster timelines and more pricing certainty for the target company. However, they come with higher costs due to sponsor fees and dilution. Traditional IPOs face greater regulatory scrutiny but tend to deliver better long-term returns on average for investors.
Frequently asked questions
Can I get my money back from a SPAC?
Yes. Before a merger vote, SPAC shareholders can redeem their shares for the trust value (typically around $10 per share). This redemption right provides a downside floor, though you forgo any upside if the deal turns out well.
Why did SPACs become so popular?
SPACs surged in 2020-2021 because they offered private companies a quicker route to public markets with less regulatory friction. Low interest rates and abundant capital fueled demand, though increased SEC scrutiny has since slowed SPAC activity.