After more than a decade of buildup, special purpose acquisition companies (SPACs) have exploded and are gaining momentum in the US and beyond.

Special purpose acquisition companies (SPACs) were big news in 2020, breaking records and captivating markets and media alike.

SPACs raised a record US$82.4 billion in 248 US IPOs in 2020, data from Dealogic shows. This compares with US$13.5 billion for 59 IPOs in 2019. In addition, 92 SPACs announced business combinations in 2020, with a total deal value of US$151 billion, up from 27 SPACS with a total deal value of US$27.6 billion in 2019.

Despite sponsor and investor interest from around the globe, SPACs have primarily been a US phenomenon. That may be changing—the London Stock Exchange is weighing possible rule changes to encourage SPAC listings; Nasdaq updated its rules to enable SPAC listings in Stockholm, effective February 1, 2021; and SPAC offerings are in process on Euronext in various European countries.

What Is a Special Purpose Acquisition Company (SPAC)?

A special purpose acquisition company (SPAC) is a company 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. Also known as “blank check companies”. SPACs have been around for decades. In recent years, they have become more popular, attracting big-name underwriters and investors and raising a record amount of IPO money in 2019. In 2020, as of the beginning of August, more than 50 SPACs have been formed in the U.S. which have raised some $21.5 billion.

What is an IPO and how does it work?

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors.

What is the purpose of an IPO?

Companies typically issue an IPO to raise capital to pay off debts, fund growth initiatives, raise their public profile, or to allow company insiders to diversify their holdings or create liquidity by selling all or a portion of their private shares as part of the IPO.

Are SPACs better than IPOs?

Private companies are flocking to SPAC deals for a few big reasons. One is that a typical SPAC comes with a 2% underwriter fee and 3.5% fee at completion compared with 7% for a traditional IPO. The timeline of a SPAC is usually three to four months versus up to a year with a traditional IPO.

How does a SPAC IPO work?

A SPAC raises capital through an initial public offering (IPO) for the purpose of acquiring an existing operating company. Subsequently, an operating company can merge with (or be acquired by) the publicly traded SPAC and become a listed company in lieu of executing its own IPO.

How does a SPAC work? 

This is the same as a SPAC IPO. 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 do not identify that target to avoid extensive disclosures during the IPO process. (This is why they are called “blank check companies.” IPO investors have no idea what company they ultimately will be investing in.) 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. A SPAC generally has two years to complete a deal or face liquidation. In some cases, some of the interest earned from the trust can be used as the SPAC’s working capital. After an acquisition, a SPAC is usually listed on one of the major stock exchanges.

Advantages of a SPAC

Selling to a SPAC can be an attractive option for the owners of a smaller company, which are often private equity funds. First, selling to a SPAC can add up to 20% to the sale price compared to a typical private equity deal. Being acquired by a SPAC can also offer business owners what is essentially a faster IPO process under the guidance of an experienced partner, with less worry about the swings in broader market sentiment.

SPACs Make a Comeback

SPACs have become more common in recent years, with their IPO fundraising hitting a record $13.6 billion in 2019—more than four times the $3.2 billion they raised in 2016. They have also attracted big-name underwriters such as Goldman Sachs, Credit Suisse, and Deutsche Bank.

Examples of High-Profile SPAC Deals

One of the most high-profile recent deals involving special purpose acquisition companies involved Richard Branson’s Virgin Galactic. Venture capitalist Chamath Palihapitiya’s SPAC Social Capital Hedosophia Holdings bought a 49% stake in Virgin Galactic for $800 million before listing the company in 2019. In 2020, Bill Ackman, founder of Pershing Square Capital Management, sponsored his own SPAC, Pershing Square Tontine Holdings, the largest-ever SPAC, raising $4 billion in its offering on 22 July.

Hot Sectors

A number of sectors in particular stood out in 2020.

Online gaming

Online gaming has been very active, with several transactions hitting the market in addition to DraftKings. These include the US$3.5 billion transaction between Flying Eagle Acquisition Corp. and Skillz Inc., the US$1.4 billion transaction between dMY Technology Group, Inc. and Rush Street Interactive, LP, and the US$800 million transaction between Landcadia Holdings II, Inc. and Golden Nugget Online Gaming, Inc.

Automotive – Electric Vehicle (EV) and Automotive Technology

The automotive sector, particularly electric vehicle manufacturers and automotive technology, has also been hot. Notable deals include Velodyne Lidar, which announced in early July its plan to merge with the SPAC Graf Industrial Corp. in a deal that valued the combined entity at US$1.8 billion. Velodyne is a supplier of lidar (light, detection and ranging) technology for developers of autonomous vehicles. The deal closed in October.

Life sciences

Life sciences has also been very active, with a number of SPACs launched by life sciences-focused investment funds.


  • A special purpose acquisition company (SPAC) is formed to raise money through an initial public offering to buy another company.
  • At the time of their IPOs, SPACs have no existing business operations or even stated targets for acquisition.
  • Investors in SPACs can range from well-known private equity funds to the general public.
  • SPACs have two years to complete an acquisition or they must return their funds to investors.