One of Wall Street’s most talked-about trends is the wave of special-purpose acquisition companies, or SPACs, that have launched IPOs at such a torrid pace that they’re on track to raise more than triple last year’s totals.
One-hundred and twelve SPACs, aka “blank-check firms,” have raised more than $40 billion so far this year, according to the website SPAC Research. There are now 183 shell companies with $57 billion to spend on bringing other companies public, the data provider said.
There’s an entire ecosystem of advisers, salespeople, and lawyers increasingly pitching blank-check companies to investment platforms and wealthy people. Asset managers like Fidelity, T. Rowe Price, and Capital Research are also increasingly participating in the market, lending an additional aura of respectability to what had once been considered a back corner of the financial markets.
Historically, SPACs have been used as an alternate way into the public markets for companies that didn’t have the governance threshold to attract investors in a traditional IPO, or a last-ditch effort for investors to exit their stake. The traditional process requires filing a prospectus, engaging with the SEC and facing scrutiny from discerning investors.
Video: Despite AOC call for probe, Peter Thiel-backed tech firm goes public, hits $22B valuation (Fox Business)
Inevitably, that meant the deals didn’t always work out well and the market had a history of failures and occasional cases of fraud. In 2005, for example, the SEC removed some protections afforded other entities after some of the shell companies were implicated in fraud, according to a Harvard Law