What is a Spac Stock? How to Buy Spacs & The Risks Involved

Investors who invest in a SPAC do so with the hope that the management team of the SPAC will be able to identify and acquire a target company that will be successful. If the target company is successful, then the investors in the SPAC will make a profit. A Spac stock is a special-purpose acquisition company created to acquire or merge with an existing company and bypass the traditional IPO process. As they are public companies listed on major exchanges, you can invest in SPACs like you can any other publicly traded stock—through your online brokerage account.

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At that point, the SPAC will trade just like any normal shares, with shareholders free to buy and sell like they would any other stock. But the blank-check company itself is just a pile of cash with no actual business behind it. The route to public offering using a SPAC may take a few months, while a conventional IPO process can take anywhere from six months to more than a year. The funds that SPACs raise in an IPO are placed in an interest-bearing trust account that cannot be disbursed except to complete an acquisition.

Some of these firms are speculative, have enormous capital requirements, and can provide only limited assurances on near-term revenue and viability. (Electric-vehicle companies often fall into this category.) SPACs have allowed many such companies to raise more funds than alternative options would, propelling innovation in a range of industries. Risk-taking and speculation at this level can be unwise for unsophisticated investors, of course, but we believe that seasoned analysts can find great investment opportunities.

Special-purpose acquisition company

The funds are held in trust account until the SPAC completes an acquisition or SPAC merger. If the acquisition or merger does not occur within a specified period of time, the funds in the IBTA may be returned to the investors. The value of the shares and warrants should trade as close as possible to their launch price, but it can change due to market volatility and if SPAC shareholders strongly believe they have found attractive acquisition target companies. In the early days, sponsors created value by investing risk capital and convincing public-equity shareholders of the investment opportunity.

At IPO, it listed 57.5 million units of stock at a price of $10 per share. If the shareholders vote in the negatory, they can get their money back (SPACs are usually priced at $10 per share, but this can vary). The $275 million in cash this SPAC raised from the sale of ADER stock will be used to finance further growth opportunities. That includes a possible expansion into the recently-opened Japanese market. The time and work that goes into a traditional IPO and the time it takes to go public is a big deterrent for many growing companies.

Are SPACs Good Investments?

In short, a special purpose acquisition company sponsor and investor might have no idea what company they will be buying at the outset. After the transaction closes, SPAC investors can become shareholders or redeem their shares, which is determined by the amount in the trust account. In this case, there will be a letter “U” at the end of the ticker symbol. Buying a unit means buying one share of common stock and one share of a SPAC warrant.

The terms of warrants may vary greatly across different SPACs, and it is important to understand the terms when investing. To learn more about the specific terms, investors should review the IPO prospectus of the particular SPAC. Another EV-maker who went public through a SPAC merger, Lordstown Motors followed a similar path to Nikola. Lordstown took over a former General Motors production plant to build its next generation electric pickup trucks.

SPAC Stock SoFi Technologies (NASDAQ: SOFI)

Simply enter the ticker into your broker service and make a purchase. You can also buy shares in a Spac before they have even completed a merger, according to Nasdaq. When the merger is complete, the broker will update your account with the stocks and the value of your shares. In a traditional IPO, though, “your ability to get an allocation on IPO shares is just really hard,” McNally notes.

With a SPAC, the process is less time-consuming, less volatile, and has the advantages of a quick and simple process where the SPAC does most of the work. There are six SPAC stocks that may catch the attention of https://forexhero.info/swissquote-forex-broker/ investors. Here is a SPAC company list with the most incredible examples, with companies that raised a considerable amount of money. This type of security tracks an index, sector, commodity, or other assets.