Other attributes
A special purpose acquisition company (SPAC), also known as a “blank check company”, is a development-stage corporation with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.
SPACs are generally formed by investors, or sponsors, with expertise in a particular industry or business sector, with the intention of pursuing deals in that area. In creating a SPAC, the founders sometimes have at least one acquisition target in mind, but they don't identify that target to avoid extensive disclosures during the IPO process. Most of the time, IPO investors have no idea what company they ultimately will be investing in. With SPACs, investors are betting on management's ability to succeed.
SPACs seek underwriters and institutional investors before offering shares to the public. The money SPACs raise in an IPO is placed in an interest-bearing trust account. These funds cannot be disbursed except to complete an acquisition or to return the money to investors if the SPAC is liquidated. SPACs generally have two years to complete an acquisition or they face liquidation. In some cases, some of the interest earned from the trust can be used as the SPAC's working capital.
After acquiring a company, SPACs often allow the targeted company's management to continue running the business, sit on the board of directors, and benefit from future growth of the business. The management team members of the SPAC typically take seats on the board of directors and continue to add value to the firm as advisors or liaisons to the company's investors.
In the United States, the SPAC public offering structure is governed by the Securities and Exchange Commission (SEC). A public offering for a SPAC is typically filed with the SEC under an S-1 registration statement (or an F-1 for a foreign private issuer) and is classified by the SEC under SIC code 6770 - Blank Checks. Full disclosure of the SPAC structure, target industries or geographic regions, management team biographies, share ownership, potential conflicts of interest, and risk factors are standard topics included in the S-1 registration statement.
The SEC has studied SPACs to determine whether they require special regulations to ensure that these corporations are not abused like blind pool trusts and blank-check corporations in the past. One way that SPACs are regulated is through the requirement to be compliant with the Sarbanes-Oxley Act that requires company management to maintain and assess its internal control over financial reporting (ICFR). The act also mandates that an independent auditor must attest to the company's ICFR, though oftentimes smaller reporting companies are exempt from this.
