What Is Special Purpose Acquisition Company (SPAC) And How It Works?
If you’ve ever been wondering how investing in SPACS look like and how to beat the market with it, then please keep reading on.
SPAC is a special purpose company that aims to acquire promising start-up companies or private companies and then take them to the public market (IPO). Using SPACS investor can early access those before public companies and deals and then ride the wave of new investors coming in via the public market.
SPACS are a popular investment vehicle for big hedge funds. Usually hedge fund would give capital to SPAC to look for mergers and acquisitions in the private market. Doing so, these funds receive rights to participate at the IPO at predetermined low price or withdraw their money before a deal going public.
In recent times SPACS have performed very well in regards to the overall market attracting a various types of investors. After SPACS announce deals to take popular private companies public, their prices skyrocket making early investors rich.
It is important to know that even if SPAC price plummet, the early investors such as hedge funds are protected by the right to withdraw their investment. Logically, there are more risk for the late investors in the process who do not have rights to withdraw or have special warrants.
Example Of Fintech SPAC Deal
A hot theme in investment world now is fintech. Given their popularity in the public world, SPACS with cash are trying to find deals and bring these hot companies to the public markets. Ultimately, investing in SPACS that announce deals with well-known fintech companies, can earn an above-average return for the portfolio.
In this way, SPACS are solving several problems at the time – allowing VC’s to exit their investments and offering additional funding for capital intensive businesses. And most importantly, todays investors are eager to buy into a fintech start-ups because of the relevancy of financial technology and governments becoming more favourable towards improved finance.
A recent Fintech and SPAC deal example is Payoneer. Payoneer will merge with FTAC Olympus Acquisition Corp (FTAC). On the announcement FTAC share price jumped 14% is if compared to the PayPal’s current valuation (a close competitor), the share price could go in a north of 40USD per share after the IPO. Payoneer had already raised 270million in venture capital money and is planned to raise additional 300 million with the SPAC.
How To Find And Track SPAC Investments?
SPACS are active not only in Fintech but also in other hot themes like green energy, cybersecurity and so on. While SPACS are becoming a more regular path to public markets, new entities are being created for the sole purpose of buying another firm and taking it public.
The overall trend is growing extremely popular since early 2020 as a way to participate in pre-IPO and finally in IPO deals. For a comparison, 242 new SPACS launched in 2020 and according to the late January of 2021 data, there were 5 new SPACS being created every day.
Nevertheless, an active investor in SPACS space must track his SPACS and look for the new ones. And a good tool for that is a SPACKTRACK.
Active SPAC list, more lists, news, calendar – all that a SPAC investor needs to track existing and make new investments into the space.
All in all, investing in SPACS can be a truly lucrative and profitable while helping the portfolio returns exceed the market average. Hope this article is helpful!