While some high-profile SPACs have performed reasonably well ( DraftKings and Virgin Galactic have both seen their stock prices grow since going public), advisory firm Renaissance Capital found that the average returns from SPAC mergers completed between 20 fell short of the average post-market return for investors from an IPO. While the SPAC merger process does require transparency regarding the target company, former Goldman Sachs CEO Lloyd Blankfein told CNBC recently that the due diligence of the SPAC process is not as rigorous as a traditional IPO.īlankfein also said that SPAC sponsors, who are mostly tasked with finding a workable acquisition within two years and not necessarily the best possible deal, are not incentivized to avoid having the SPAC overpay for the target company. Target companies run the risk of having their acquisition be rejected by SPAC shareholders.Īnd investors are literally going blindly into the investment. Of course, there are still risks with SPACs. With large institutional investors and other billionaire backers launching SPACs left and right, the trend is unlikely to disappear overnight. Otherwise the SPAC is liquidated and investors get their money back with interest. However, SPAC sponsors also have a deadline by which they have to find a suitable deal, typically within about two years of the IPO. The SPAC sponsors typically get about a 20% stake in the final, merged company. Once an acquisition is completed (with SPAC shareholders voting to approve the deal), the SPAC's investors can either swap their shares for shares of the merged company or redeem their SPAC shares to get back their original investment, plus the interest accrued while that money was in trust.

Once the IPO raises capital (SPAC IPOs are usually priced at $10 a share) that money goes into an interest-bearing trust account until the SPAC's founders or management team finds a private company looking to go public through an acquisition.

That's also why a SPAC is also often called a 'blank check company.'

Institutional investors with track records of success can more easily convince people to invest in the unknown. That's because when a SPAC raises money, the people buying into the IPO do not know what the eventual acquisition target company will be.

What is back stock