Special-purpose acquisition company

A special purpose acquisition company (SPAC) is a type of investment fund that allows public stock market investors to invest in private equity type transactions, particularly leveraged buyouts. SPACs are shell or blank-check companies that have no operations but go public with the intention of merging with or acquiring a company with the proceeds of the SPAC's initial public offering (IPO).

SPACs were traditionally sold via an initial public offering (IPO) in $6 units consisting of one common share and two "in the money" warrants to purchase common shares at $5 a common share at a future date usually within four years of the offering. Today, SPAC offerings are more commonly sold in $8–10 units which consist of one common share and one warrant. SPACs trade as units and/or as separate common shares and warrants on the OTC Bulletin Board, , and the Nasdaq and (as of 2008) once the public offering has been declared effective by the U.S. Securities and Exchange Commission (SEC), distinguishing the SPAC from a blank check company formed under SEC Rule 419. Trading liquidity of the SPAC's securities provide investors with a flexible exit strategy. In addition, the public currency enhances the position of the SPAC when negotiating a business combination with a potential merger or acquisition target. The common share price must be added to the trading price of the warrants to get an accurate picture of the SPAC's performance.

By market convention, 85% to 100% of the proceeds raised in the IPO for the SPAC are held in trust to be used at a later date for the merger or acquisition. Today, the percentage of gross proceeds held in trust pending consummation of a business combination has increased to 98% to 100%.

The SPAC must sign a letter of intent for a merger or an acquisition within 18 to 24 months of the IPO. Otherwise it will be forced to dissolve and return the assets held in the trust to the public . However, if a letter of intent is signed within 18 to 21 months, the SPAC can close the transaction within 24 months. Today, SPACs are incorporated with 24-month limited life charters that require the SPAC to automatically dissolve should it be unsuccessful in merging with or acquiring a target prior to the second anniversary of its offering.

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