SPAC

A SPAC is a shell company with no operating business of its own. The sole objective of this shell company is to raise capital through a listing. The shares are placed privately prior to the start of trading and the proceeds are used to acquire a non-listed company within a limited period of time and to indirectly list it on the stock exchange. Which company is taken over in this way is not yet known at the time of the SPAC listing. In most cases, only the sector of the possible target company is known. 

Within a maximum of 24 months, a SPAC must find a company to acquire. Once this transaction has been completed, a previously unlisted company is indirectly listed on the stock exchange via the SPAC. The initiators and management are considered a key success factor.

The issue of a SPAC consists of a share and an associated warrant. The share is often issued at a fixed amount, such as 10 US dollars, or 10 euros, and privately placed in advance in large tranches, starting at 100,000 shares, or 1 million euros. The warrant offers an additional profit option in case of success.

Opportunities and risks for investors

Private investors can usually only invest in a SPAC from the start of trading by buying it at the stock market price, which often fluctuates around the issue price. In the favorable entry lies the opportunity for investors, namely if the takeover of a target company with strong growth potential and corresponding price fantasy succeeds. 

The risks lie primarily in the much lower transparency requirement compared with a traditional IPO. The target company is not known until the takeover and thus neither its business model nor its fundamental basis. Investors invest money in a company that they do not yet know.