SPACs – special purpose acquisition companies – have become an increasingly popular way for US companies to go from private to public.
Rahman Ravelli’s Syed Rahman wrote an overview of the SPAC phenomenon, which has been published by Finance Monthly.
Estimates say around $64 billion in funding was raised by 200 SPACs going public in 2020. The UK government is currently examining a Treasury-backed review that calls for changes so that London can attract SPAC business.
Syed’s article outlines the arguments put forward for SPACs by their supporters. It also details the process by which a SPAC is created. But it also emphasises that while creating a SPAC may appear relatively straightforward, it is not without its risks.
The article explains that the due diligence carried out regarding SPACs is not as thorough as that involved in a traditional initial public offering (IPO). The SPAC business model allows its sponsors to promote it in any why they think will be of benefit. This, Syed argues, brings the possibility of wrongdoing; most notably investment fraud.
Close attention needs to be paid to issues such as investor protection and how the SPAC raised its capital, while any suspicions of insider dealing or other forms of market manipulation should be investigated immediately.
Syed's article featured on Finance Monthly.