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Special Purpose Acquisition Companies (SPACs), also known as 'blank cheque' or 'shell' companies, have no commercial operations. They're created solely to raise capital to acquire another company or list on stock exchanges, aiming to attract potential investors for future ventures.

An active company can merge or be acquired by a SPAC to become publicly listed, instead of going through a traditional IPO (faster). SPACs are created for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, re-organisation or similar business combination.

From establishment, the SPAC usually has 24 months to complete the entire acquisition process. There are many steps, but the main ones involve:

• searching for a target company to acquire
• negotiating a takeover agreement
• holding investor meetings and seek shareholder approval
• executing the merger
• if no merger is completed within the set timeframe, the SPAC is liquidated and funds are returned to public shareholders

After the SPAC completes a merger with a target company, the previously privately held company will become publicly listed. The stock ticker for the SPAC is changed to reflect the name of the acquired company and with this it will start trading on the selected exchange.

A SPAC is a high-risk investment. SPACs have recently been very popular with investors around the world. However, this investment carries risks due to several factors (outlined below).

The SPAC may fail to identify a target company within the required time period (typically 24 months) and have to return funds to its investors, causing no return to be achieved over the period that the capital was invested.

Growing SPAC competition may lead to targeting early-stage firms, increasing investment risks—especially in new sectors like tech or space. These firms often have limited financial history, evolving controls, and rely on projections. They must meet public company standards post-merger.

SPAC sponsors and directors may have interests that don’t align with those of public shareholders. Investors must rely heavily on the SPAC’s management to find a strong merger target, though some parties may be financially motivated to complete a deal within the set timeframe.

In contrast to an IPO, there is no underwriter in the SPAC’s merger process, so the comprehensive due diligence which is usually associated with a company going public may not be carried out.

SPAC sponsors have limited time to close a deal, which may affect how thoroughly they research acquisitions, especially if they won’t stay involved post-merger. Due to this time pressure, founders may focus more on completing a deal than on whether the target is fit to go public.