The SPAC (Special Purpose Acquisition Company) craze has well and truly hit the market.
From making up just a fraction of all funds raised through IPOs in the USA in the past, SPACs have grown to become the bulk of IPOs in the first quarter of 2021. During the period, SPACs’ fundraising made up 69% of all IPO proceeds raised, up from around 20% in 2020.
The recent booming interest in SPACs raises a question: Do SPACs really make good investments? In this article, I run through some of the pros and cons of investing in SPACs, who are the winners and losers in this space, and why I’m avoiding any SPACs pre-merger.
Why are SPAC IPOs so popular?
SPACs are entities that are formed with the intention of merging with another existing company. SPAC investors will then become shareholders of the new combined entity.
When SPACs raise money at an IPO, investors are simply providing the “shell”...